Standing Committee D

[Mr. Eric Illsleyin the Chair]

Clause 67

Name not to be the same as another in the index

Amendment proposed [this day]: No. 129, in clause 67, page 28, line 16, at end insert—
‘(6) Nothing contained in this section shall prohibit or inhibit an objection under section 70.'.—[James Brokenshire.]

Question again proposed, That the amendment be made.

Eric Illsley: I remind the Committee that with this we are discussing the following: Clause stand part.
Amendment No. 130, in clause 68, page 28, line 22, leave out from ‘names,' to end of line 23.
Clause 68 stand part.
Amendment No. 131, in clause 69, page 28, line 42, after ‘be', insert ‘in writing and'.
Clause 69 stand part.
Amendment No. 132, in clause 70, page 29, line 18, after ‘name', insert ‘or incorporates a name'.
Amendment No. 133, in clause 70, page 29, line 19, after ‘goodwill', insert ‘in the United Kingdom'.
Amendment No. 134, in clause 70, page 29, line 22, after ‘applicant', insert
‘provided that the applicant was using such name in the United Kingdom at that time.'.
Amendment No. 135, in clause 70, page 29, line 23, at end insert
‘within twelve months of the company’s registration with the relevant name’.
Amendment No. 252, in clause 70, page 30, line 2, after ‘upheld', insert —
‘(i)'.
Amendment No. 253, in clause 70, page 30, line 5, at end add
‘or
(ii) if the activities of the company using the registered name would be likely to deceive members of the public or to cause loss or damage to persons dealing with the company.'.
Amendment No. 136, in clause 70, page 30, line 6, at end insert—
‘(6A) Without prejudice to the foregoing provisions of this section, in the event that all of the circumstances contemplated in subsection (8) are satisfied, an applicant may apply to a company names adjudicator for an interim order under this subsection.
(6B) The circumstances referred to in subsection (7) are that—
(a) the applicant is a company whose shares are listed on a regulated market;
(b) the applicant has published a circular to shareholders incorporating a resolution proposing to change its name to a particular name (a “relevant name”); and
(c) a company (the “respondent”) has been incorporated with the relevant name or changed its name to the relevant name in either case on or after the dateof publication of the circular referred to insubsection (8)(b).
(6C) If an application for an interim order is made and the adjudicator is satisfied that the provisions of subsection (8) are satisfied, the adjudicator shall make an order requiring the respondent to change its name to a name specified by the adjudicator.
(6D) The adjudicator must give notice of his interim order—
(a) to the applicant;
(b) to the respondent; and
(c) to the registrar.
(6E) Upon the presentation by the applicant to the registrar of an official copy of the interim order together with all other documents contemplated by section 78 (Change of name by special resolution), and the registrar is satisfied that—
(a) the relevant name complies with the requirements of this Part, and
(b) the requirements of the Companies Acts and any relevant requirement of the applicant's articles, with respect to a change of name are complied with,
the registrar must enter the relevant name as the new name of the applicant and enter the name set out in the interim orderas the new name of the respondent on the register in place of the former names of the applicant and respondent respectively.
(6F) On the registration of the new names, the registrar must issue a certificate of incorporation to each of the applicant and the respondent altered to meet the circumstances of the case.
(6G) The making of an interim order shall be without prejudice to any other legal rights of the applicant or respondent or any application by the respondent under subsection (1).'.
Amendment No. 137, in clause 70, page 30, line 7, after ‘section', insert ‘and in section 73'.
Amendment No. 60, in clause 70, page 30, line 7, at end insert—
‘(8) In this section “start-up costs” shall be considered “substantial” in relation to the annual revenue and assets of the company.'.
Clause 70 stand part.
Amendment No. 138, in clause 73, page 31, line 20, after ‘application', insert
‘other than an application for an interim order'.
Amendment No. 264, in clause 73, page 31, line 20, leave out subsection (1) and insert—
‘(1) If an application under section 70 is upheld, the adjudicator shall make an order, either—
(a) requiring the respondent company to change its name to one that is not an offending name, and requiring all respondents—
(i) to take all such steps as are within their powers to make, or facilitate the making of that change, and
(ii) not to cause or permit any steps to be taken calculated to result in another company being registered with a name that is an offending name, or
(b) requiring the respondent company to undertake to the applicant and to the Secretary of State not to operate under the registered name in connection with such activities as may be specified in the order.'.
Amendment No. 139, in clause 74, page 32, line 6, at beginning insert
‘Other than in the case of an application for an interim order,'.

Vera Baird: I had dealt with amendment No. 129 and moved on to amendment No. 130, but I shall interpolate a comment on the matter of the twin-track clash between clauses 70 and 78 that the hon. Member for Hornchurch (James Brokenshire) asked me to address. If a company is not required to change its name under one provision, that will not affect the possibility of its being required to do so under another. The clauses cover separate situations.
The Opposition’s amendment No. 130 is on a difficult matter. It probes why we have included a paragraph covering not names that were on the register but those that should have been. Clause 752 states that the registrar’s index of company names must include names of various bodies other than companies, including limited partnerships, European economic interest groupings registered in the UK and industrial and provident societies. The rules relating to the names of such bodies are not exactly the same as those for companies, but they still appear on the registrar’s index. Whereas companies’ names appear on the index immediately upon being taken, that is not the case for the other bodies. That is becoming less of a problem thanks to electronic communication, but the fact remains that a name may have been adopted but not yet arrived on the index because of the different procedures. It helps the public if the registered names of a wide range of business organisations are unique, and if there are two very similar ones on the index it makes searching for information difficult. If a company takes a name very similar to one that should be on the register but is not yet, it is in the public interest that a change of name be required.
Such a situation arises rarely, but it is important that the facility to direct changes of name remains available, which is why the clause keeps the power in the Companies Act 1985. I agree that it is a pity that we still need that power, but removing it would make the situation worse because there could be two bodies called Whatever Ltd. I hope it deals with the hon. Gentleman’s point to say that there is a mismatch between the procedures for companies and those for non-companies that have to be on the register, creating the possibility of a name that should have been there being taken by someone else.
Amendment No. 131 relates to whether directions given under clause 69 should be in writing. We agree that it is better for all directions to be made in writing and I ask the hon. Gentleman not to press the amendment on the understanding that we will look again at the matter. Parliamentary counsel might advise that a wrapping-up clause be included at the end of the Bill to say that all directions must be in writing, or that the instruction should be added to clause 69. We accept the spirit and substance of the amendment.
On amendment No. 132, we intend that it will be possible under clause 70 to object to a name that incorporates another. Subsection (1)(b) covers the problem that the hon. Gentleman pinpointed in the amendment. It is true that subsection (1)(a) states that it is intended to cover a name that is
“the same as a name associated with the applicant”
but subsection (1)(b) makes it clear that any name is included that is “sufficiently similar” that its use would be likely to mislead. We feel that the matter is adequately covered without the amendment, which does make a good point that needs emphasising. It need not be exactly the same words but just to have a very close similarity.
We are introducing the procedure in clauses 70 to 74 to address the problem of opportunistic registration, referred to by Opposition Members, by which I mean the sharp practice of registering a company in a name that the opportunist realises is about to be used by someone else.
I understand that when Glaxo and Wellcome plcs held merger negotiations someone registered a company in the name of Glaxo Wellcome Ltd and then sought to bargain with those plcs for the release of the name. Clearly, that was an abuse of the registration process. It would have been equally so had the registration been because the opportunist believed that a company big outside the UK was about to establish itself here.
Having explained the purpose of the clauses, I shall deal with amendments Nos. 133 and 134, which attempt to limit the application of the clauses to a name that had goodwill in the UK only. As I said, it would be equally opportunistic and an abuse of the procedure if someone registered the same name as one big outside the UK because he believed that it was about to establish itself here, under provisions in the clauses. If the owner of the big name were able to show that the main purpose behind that choice of name was to get money from him, or to prevent him from registering, the adjudicator may uphold his objection and require the other company to change its name. That is a pragmatic solution to a real problem.
I have been asked to make it plain that we are indebted to Mr. Mendelsohn, a lawyer, who suggested that solution to the company law review. It was a bright idea indeed.
Restricting the grounds for an objection to goodwill in the UK, as amendments Nos. 133 and 134 would do, would reduce the usefulness of the clause for no purpose. I hope that the hon. Gentleman will not press those amendments.
I turn to the time limit provision in amendmentNo. 135. If we set a time limit of one year, the canny opportunist would simply not approach the person whose goodwill he intends to exploit until the 366th day, the 367th day in a leap year. I understand that the hon. Gentleman is concerned that the absence of a time limit might expose an innocent company to an application under the clause. However, subsection (4) provides the appropriate protection. If a company is operating under a particular name, or has incurred substantial start-up costs, the objection to the name, in order to be upheld, would have to show that that name was chosen only to obtain money from the objector. That protection is better than a time limit, which is fallible, so we invite him to think that companies will be adequately protected against that danger, and not to press the amendment.
I turn to amendments. Nos. 252 and 253, proposed by the hon. Member for Grantham and Stamford(Mr. Davies), and supported in the Committee by his hon. Friends. The Bill is not intended to address wrongs to which there are remedies under other legislation. The amendments argue that there might be a problem with unscrupulous persons causing public harm by trading as a company registered in a name that misleadingly suggests a connection to someone more reputable. We are not sure that there is a gap or, if there was, that the amendment would be the right way to address it. However, we think that there is something for us to look at here.
We respectfully invite the hon. Member for Hornchurch, on behalf of his colleague, not to press amendments Nos. 252 and 253, which I think arrived on the scene fairly recently anyway—about a week ago—and to give us an opportunity to seek to plunge whether there is an issue, and how to tackle it if there is. Obviously, we would appreciate any help that Opposition Members can give us in that process.
Amendments Nos. 136, 138 and 139 introduce an interim procedure to protect plcs quoted in the amendment—I think—from the threat of such opportunism if they circulate their new name to their membership. The kind of plcs that would benefit from the amendments ought to incorporate a company in the relevant name before they send the circular out—they could just buy a Jordan’s company for £20—and thereby get away from the danger that they put themselves in by tackling it from the opposite point of view. If, however, that is not done, we do not see the need for the hon. Gentleman’s interim procedure, which gives a final outcome, because the whole of this section is intended to deal with the very problem that his procedure would address. He is offering an alternative, and we think that ours is better. The framework that we have set up provides the extra assurance that, in order to prevent their names from being poached companies simply need to incorporate.
On amendment No. 137, it might help if I explain the context in which goodwill is used in clause 73. The hon. Gentleman wanted a definition, and asked whether having a trademark would be sufficient to constitute goodwill. I omitted over luncheon to find out the answer to that. I shall either get one now or write to him. As it is used in clause 73, goodwill is about what happens when an application to an adjudicator is successful. He might order the company to change its name, but there will be restrictions on what it can change it to, because it will not be allowed to change to something that is just as bad, from the point of view of the objector, as the name that has just been disallowed. The restrictions are made by reference to, as clause 70 puts it, the
“name associated with the applicant in which he has goodwill”.
The circle is complete. It is evident from the legislation—I cannot find an alternative meaning—that what is intended is that somebody who is ordered to change a name because it is too close to the name associated with the applicant in which he claims goodwill cannot change it to something else that is associated with the applicant in which he claims goodwill. There is no need for any further clarity. I can now tell the hon. Gentleman that it is intended that a trademark should be sufficient to trigger goodwill. I am glad that I remembered that.
Amendment No. 60 concerns the substantial start-up costs mentioned in clause 70(4)(b)(ii). It aims to define what substantial means in terms of start-up costs, and seeks to link them to the assets and annual revenue of a company. That is unlikely to be relevant to many start-ups. What will happen, as is evident from the legislation, will be that the adjudicator will consider whether the company in question has paid out substantial start-up costs. It would be silly if substantial meant £10,000 or any fixed definition. It is far better for the adjudicator to be free to look at the specific company and to say whether he considers that the start-up costs have been substantial in that context. The position is clear, and the Bill is long enough without adding anything extra to it.
The procedure is intended to address opportunistic registration. It is not intended to be an alternative to any existing remedy under the law on trade marks and passing off in relation to names that people might want because of a merger or because they are converting their business to a liability partnership. Amendment No. 264 would create an easy means of preventing a company from trading under a particular name in the context of passing off, and that is not what this measure is about. I have given clear undertakings on amendments Nos. 131, 252 and 253, and I hope that the hon. Gentleman is satisfied with my explanations and will not press his amendments.

James Brokenshire: I am grateful to the Minister for that full response, and I note what she said in relation to clause 67 and amendment No. 129, and the fact that it is intended to stop companies getting on the register in the first place. In some ways, I was focusing on the word “registered”, which was deemed to mean both incorporation and change of name when we debated it earlier. I wanted to give the contextual position of it meaning both circumstances. A little reflection on that might avoid any confusion.

Vera Baird: I am sorry that I had not realised that part of the thrust of the amendment is the same point that we debated on Tuesday. The same answer applies as applied then; this is about becoming registered. It is not about continuing to be registered.

James Brokenshire: I am grateful to the Minister for that intervention, but in our debate on Tuesday we suggested that the point covers both circumstances. The thrust of my amendment is based on the fact that this is not just a pre-incorporation situation. It perhaps underlines the thrust of my original amendment, which suggested that the word “registered” might need to be looked at carefully in terms of the context in which it arises.
The same point that I made on amendment No. 129 arises in part on clause 68: we did not discuss the Secretary of State’s power to direct a company to change its name if it has been registered in a name that is the same or similar. There is some crossover between that and clause 70 and the twin-track approach. The Minister says that there should not be a problem but I think it needs a further cold towel to ensure that the interrelationship between the clause 68 regime and the clause 70 regime works effectively and that there is no misuse.
I will not press amendments Nos. 129 and 130. I hear what the Minister says about the fact that non-companies could appear on the index and I am grateful for her explanation. I still feel that that should be speeded up and that any gap or potential issue is reduced as much as possible because clearly it is not in the interest of a company seeking to register if, having done its search of the index of names, discovered nothing, it then finds out that there was a problem. That would be unacceptable.
I am grateful for the Minister’s comments on amendment No. 131. I agree that it is a matter for the parliamentary draftsmen to look at the most effective way of dealing with the “in writing” point. If later in the Bill it could be stated that directions from the Secretary of State in all circumstances shall be in writing, it would save us having to put “in writing” in each context in which it arises. I respect the way that the Minister addressed that amendment.
I note what the Minister said about linkage with the UK. All I would ask is that the issue be kept under close scrutiny. I would not like to think that this power was misused or used in a way that was not currently anticipated and that a creditor from outside the United Kingdom could seek to use its powers to intimidate and put pressure on the smaller company in this country and use the sort of inequality of arms argument to which I alluded. Again, I am grateful for her response. We will need to keep the matter under close observation. I also note the Minister’s comments on amendments Nos. 252 and 253, which were prompted by concerns raised by the CBI. I am grateful for her assurance that this matter will be looked at in further detail and therefore I look forward to receiving further information and details in that regard.
The one area on which I am not satisfied relates to amendments Nos. 136, 138 and 139 and the proposal for an interim order. I hear what the Minister says about a company’s ability to protect its position by incorporating a limited liability company and undertaking the name swap that I mentioned.
This tranche of clauses is intended to protect against opportunistic registration in circumstances where the respondent’s main purpose in registering the name is to obtain money from the applicant or prevent him from registering the name. I find it extraordinary that having been presented with a serious problem that unfortunately occurs fairly frequently, the Government are not minded to consider the issues that I alluded to in my opening comments. Why should they not also address the problem of opportunistic registration instead of saying, “Sorry, you’ve just got to register a limited liability company and that’s it.”?

Jonathan Djanogly: My hon. Friend makes a persuasive argument. The Minister spoke about the ability to set up another company and name swap, which is used daily throughout the country. Thousands of companies, if not tens of thousands, exist simply because of a name swap. That distorts the picture of how many companies we have and for what purpose they exist, but it is also a huge waste of resource, and indeed civil service resource, to wind such things up when they are not needed.

James Brokenshire: I am grateful to my hon. Friend for his intervention. The drafting of the amendments is quite narrow and meant to cover a specific problem. Therefore, it is surprising that the suggestion is, “You’ve just got to do what you should have been doing in the first place.” It is recognised that that is what companies could do to protect themselves, but if a company is being opportunistic and using this as a mechanism to extort money—it does happen—it is unfortunate that the Government will not take that serious issue on board. I am therefore minded to press the relevant amendment to a Division.

Vera Baird: I did mention the potential that the hon. Member for Huntingdon talked about. It is used, and it is not very resource intensive—it costs about £20—but he has a point about winding up such affairs at some stage.
I also said that if that has not been done and there is a challenge, whether before or after a circular has been published, that is what the proceeding in the statute is all about. Nothing would be added by the amendments. To call this an interim procedure is not realistic, because if the adjudicator is satisfied that opportunism exists, he “shall” make an order
“requiring the respondent to change its name”.
It is a final law, just like the one in the statute. Why is the amendment better?

James Brokenshire: I am grateful to the Minister for clarifying her thoughts. The concept that this is an interim measure would have ensured that it was shown to enable a formal challenge under the more general clause 70 regime, so that a plc in those circumstances could seek redress with the speed anticipated by the clause. A more wide-ranging debate on goodwill could happen thereafter. In terms of the balance of risk and harm, the interim order would work by addressing the larger evil in such circumstances.
I fear the Government’s good intentions to deal with opportunistic registration arrangements. I do not question or doubt the intent behind the proposals, but I fear that they will not resolve the issue. Unfortunately, deals involving brown envelopes will have to continue because of embarrassment and the speed that I alluded to in relation to the 21-day period. When we come to later debates on resolutions, we might consider a shorter notice period for general meetings.
I do not think that the Government’s structure, even with the best of intentions, will deal with the matter. It is a pity that opportunist registrations to extort cash out of companies will not be addressed if the amendments are rejected.
Amendment No. 137 relates to goodwill. I am grateful to the Minister for her comments on trademarks and clarification, which are much appreciated. I hear what she says about start-ups and the costs that have to be analysed, and I will not press the amendment to a Division. However, amendments Nos. 136, 138 and 139 raise a significant issue, and I will divide the Committee on amendment No. 136, as it is the most important.
I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 67 ordered to stand part of the Bill.

Clauses 68 and 69 ordered to stand part of the Bill.

Clause 70

Objection to company’s registered name

Amendment proposed: No. 136, in clause 70, page 30, line 6, at end insert—
‘(6A) Without prejudice to the foregoing provisions of this section, in the event that all of the circumstances contemplated in subsection (8) are satisfied, an applicant may apply to a company names adjudicator for an interim order under this subsection.
(6B) The circumstances referred to in subsection (7) are that—
(a) the applicant is a company whose shares are listed on a regulated market;
(b) the applicant has published a circular to shareholders incorporating a resolution proposing to change its name to a particular name (a “relevant name”); and
(c) a company (the “respondent”) has been incorporated with the relevant name or changed its name to the relevant name in either case on or after the date of publication of the circular referred to in subsection (8)(b).
(6C) If an application for an interim order is made and the adjudicator is satisfied that the provisions of subsection (8) are satisfied, the adjudicator shall make an order requiring the respondent to change its name to a name specified by the adjudicator.
(6D) The adjudicator must give notice of his interim order—
(a) to the applicant;
(b) to the respondent; and
(c) to the registrar.
(6E) Upon the presentation by the applicant to the registrar of an official copy of the interim order together with all other documents contemplated by section 78 (Change of name by special resolution), and the registrar is satisfied that—
(a) the relevant name complies with the requirements of this Part, and
(b) the requirements of the Companies Acts and any relevant requirement of the applicant's articles, with respect to a change of name are complied with,
the registrar must enter the relevant name as the new name of the applicant and enter the name set out in the interim order as the new name of the respondent on the register in place of the former names of the applicant and respondent respectively.
(6F) On the registration of the new names, the registrar must issue a certificate of incorporation to each of the applicant and the respondent altered to meet the circumstances of the case.
(6G) The making of an interim order shall be without prejudice to any other legal rights of the applicant or respondent or any application by the respondent under subsection (1).'.—[James Brokenshire.]

Question put, That the amendment be made:—

The Committee divided: Ayes 7, Noes 9.

Question accordingly negatived.

Clause 70 ordered to stand part of the Bill.

Clause 71

Company names adjudicators

Question proposed, That the clause stand part ofthe Bill.

James Brokenshire: The clause makes detailed provision for company names adjudicators, but raises a number of questions. How many company names adjudicators will be created? What will be their annual cost? How will that cost be met? Will the adjudicator service be met out of fees and costs charged to relevant companies or from another source? What functions will be assigned to the chief adjudicator? To whom will the chief adjudicator and the company names adjudicators be accountable? Will appointments be full-time or part-time? How many other staff will be employed? Whose offices will the adjudicators work from? Will the chief adjudicator have a separate office? Where will hearings be held—in court rooms or other buildings? What requirements are there for adjudicators to report on their work to Parliament or any other body?
I would be grateful for some clarification. The wording in clause 71 is brief and talks about the appointment, but we do not have the context or the information about what that will mean practically. I would be grateful for the Minister’s response on at least some of those issues.

Vera Baird: Does the hon. Gentleman want to know how tall they will have to be, or which gender? I do not know whether they will be full-time or part-time appointments, but it will be possible to job share, I am sure.
I can tell the hon. Gentleman whom the Secretary of State will appoint, if that was one of his questions—I have forgotten because they came out so fast and staccato. It is intended that Patent Office tribunal members will be appointed. The Patent Office will provide the tribunal staff and the costs will be recovered from fees. I shall write with more specific details.

James Brokenshire: It would help the Committee to have a better understanding of how the clause will work in practice. I provided my shopping list of questions about the adjudicators, but they underline the serious problem of the lack of detail about the practical arrangements for the new adjudicator service, such as what type of person would be required and how many there would be. Such detail would allow us to get a feel of whether we are talking about a huge organisation or a small one and what precisely we are considering. We do not have that clarity at the moment, and although I will not vote against the clause, that clarification would be helpful. If the Minister writes to me, that will be extremely helpful for all parties.

Vera Baird: I certainly will write and supply all those details. If the hon. Gentleman wants such information in another case he should let me know prior to the Committee and I shall try to have it available at the right time.

James Brokenshire: I am grateful for that. I look forward to receiving some of the details and I will be happy to give the Minister a shopping list as appropriate.

Question put and agreed to.

Clause 71 ordered to stand part of the Bill.

Clause 72

Procedural rules

James Brokenshire: I beg to move amendmentNo. 61, in clause 72, page 30, line 33, leave out ‘may' and insert ‘shall'.

Eric Illsley: With this it will be convenient to discuss amendment No. 62, in clause 72, page 31,line 13, at end insert—
‘(l) requiring the publication of all decisions by the adjudicator within 90 days of the decision being given.'.

James Brokenshire: I have two quick little points to make. The clause uses the word “may” in relation to the rules for adjudicators set down by the Secretary of State, and it would be better to give some definitive context by saying that they “shall” make provision for the relevant items in clause 72(2), as amendmentNo. 61 would do.
Amendment No. 62 raises a slightly different issue about the publication of the decisions of adjudicators. If we are to avoid problems arising, it is obviously as well to ensure that decisions are publicised so that people can understand them and avoid the need to get into such circumstances in the future, and to share best practice for all professional advisers. It would therefore be helpful to ensure that decisions are published to avoid the potential for future disputes. I appreciate that hardened individuals intent on extorting money will pay no regard to that, but it would be helpful to have transparency for the general commercial and corporate sector. This is a probing amendment to seek to promote that idea, as such knowledge would be in the interests of all parties.

Vera Baird: The hon. Gentleman has successfully promoted his amendment No. 62. It is clear that there should be a requirement for the adjudicators’ decisions to be published. One could argue that if they contain a point of law they will be reported anyway, but we agree with the proposal. If he withdraws the amendment, we will work out the best way of putting that together. The deadline might not be exactly as he has proposed, as it has to work out with other deadlines. If he is happy to withdraw the amendment, I shall undertake to consider it, as he makes a good point.
On including “shall” instead of “may”, the clause provides a power to make rules about proceedings before the adjudication and lists various matters that might be included in those rules. The Patent Office has advised on the issue because it has experience of operating similarly focused tribunals. Under the clause as drafted, a listed matter might be omitted and an unlisted matter might be included, so long as the clause says “may”. Alternatively, a matter could be left to be determined by the chief adjudicator. The point of putting “may” instead of “shall” is to give maximum flexibility, which is important because this is a new procedure and we want to make it as cost-effective as possible for users. Obviously, we will consult on the rules.
If the hon. Gentleman is content with that, I hope he will consider not pressing either amendment, given that he argued successfully on amendment No. 62.

James Brokenshire: I do not know what the process is whereby I can quit while I am ahead. I am grateful for what the Minister said about amendment No. 62. That would be extremely helpful. I do not intend to press amendment No. 61 to a vote. It is obviously a technical drafting amendment and I hear what the Minister said. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 72 ordered to stand part of the Bill.

Clause 73 ordered to stand part of the Bill.

Clause 74

Appeal from adjudicator’s decision

James Brokenshire: I beg to move amendmentNo. 63, in clause 74, page 32, line 11, leave out subsection (3).
The clause deals with appeals from a company’s named adjudicator to the court. Subsection (3) deals with suspending the adjudicator’s order on appeal. The problem is highlighted by the CBI, which says:
“There should not be an automatic suspension of the adjudicator’s order on appeal...Otherwise this sub-clause is an encouragement to appeal and to continue trading under an offending name, damaging the applicant’s goodwill even further. 
Rather, it should be open to the respondent to seek a court order suspending the order, as it should be open to an applicant to seek an order preventing the respondent company from trading under the name until the questions concerning the abuse by the respondent have been settled.”
I note that the matter was highlighted in another place. Lord McKenzie of Luton was not persuaded by a similar argument. He suggested that the concerns were unfounded, on the basis that registering a name does not confer a right to trade. If a company were forced to change its name immediately, someone else might take the name.
It is worth considering some of his specific comments in Grand Committee. Lord McKenzie said:
“If a company had to change its name immediately, its name might then be taken by anyone else. In particular, it is likely that the applicant would wish to register the name, if only as a precautionary measure. This means that the company would have lost the name even if the court were to reverse the adjudicator’s decision.”
He also said:
“the fact that the company has registered a particular name does not confer a right to trade under it.”—[Official Report, House of Lords, 1 February 2006; Vol. 678, c. GC121-22.]
I hear what the noble Lord said, but on the point about immediate change, there is surely a risk that that would happen in all circumstances covered by clause 70. If an order were made, a company would clearly want to protect its position immediately. How would that mechanism work? I was not persuaded by his comment.
We are not talking about trading names but corporate names. There is a fundamental distinction. For that reason, I tabled the amendment suggested by the CBI. I look forward to the Minister’s response.

Vera Baird: The hon. Gentleman correctly quotes my noble Friend and more or less correctly quotes his noble Friend—

David Howarth: Round we go again.

Vera Baird: Indeed, and for no particular reason, as far as I can see.
The amendment is misconceived. Its effect would be that even if a company’s appeal were successful, it could well be impossible for it to have the disputed original name as somebody else might have taken it. That is not a fanciful idea because it would be the sensible thing for the other party to do in the meantime. That would be wholly inequitable.

James Brokenshire: I moved the amendment because the problem has again been highlighted by the CBI, so it is clearly of concern. While I recognise that we are covering ground that may have been covered before in another place, if something is of concern it is the duty of the Opposition to continue to highlight it in Committee. I note what the Minister said, but it is our duty to ensure that problems are properly highlighted. Although they have been discussed in another place, it is still important that we have an opportunity to debate them after reflecting on the changes that were made to the Bill there and in the context of debates on Second Reading in this House. While I note that the Minister is not prepared to give ground, it is important that we retain that opportunity and that I do not feel fettered in raising issues that have been raised elsewhere. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 74 ordered to stand part of the Bill.

Clause 75 ordered to stand part of the Bill.

Clause 76

Misleading indication of activities

James Brokenshire: I beg to move amendmentNo. 140, in clause 76, page 33, line 9, after ‘public', insert
‘or a section of the public'.

Eric Illsley: With this it will be convenient to discuss amendment No. 141, in clause 76, page 33,line 10, at end insert
‘A direction under this section must be in writing.'.

James Brokenshire: I will not speak to amendment No. 141, because of the assurance given by the Minister. However, amendment No. 140 is on a slightly different subject. Clause 76 provides a mechanism whereby if a misleading indication is given as to the nature of the activities of a company and it is
“likely to cause harm to the public, the Secretary of State may direct the company to change its name.”
The amendment is intended to clarify the use of the words “the public”. When looking through the Bill, I asked myself what would happen if only a section of the public were harmed—for example, the elderly or another vulnerable group.
In other companies legislation a distinction can be drawn between the public and a section of it. While the language in the clause repeats that in section 32(1) of the 1985 Act, the Bill gives us the opportunity to ensure that we adequately and properly address the problem. We are considering activities likely to cause harm, and even if harm is caused to only a section of the public, it is still harm. I appreciate that there is a balance to be drawn and that the amendment may not be as precise and elegant as it would need to be, but the point is still valid and worth further examination to ensure that we are clear as to when an order should be given. We must ensure that a person subject to such an order is not given the right to make a legal challenge by saying, “Well actually, we are not affecting the public. We are only affecting a section of the public.” That would clearly not be in the public interest, so it is worth examining.

Vera Baird: The hon. Gentleman does himself a disservice—this is an elegant amendment, except that we do not think it necessary. I understand the underlying concern, which he set out plainly, but the criterion
“likely to cause harm to the public”
does not require the whole population to be in danger. “Public” means anyone not related to the company.
The problem with the amendment is that it suggests that a risk must be either to all those or to a group—a section of the public—who share a characteristic, such as the elderly or the vulnerable, for example, as he said, that distinguishes them from the rest of the public. As the provision is drafted, all that would be required to trigger the power in the clause is the risk of harm to a substantial number of people, whether or not they could be described as a section of the public, according to the hon. Gentleman’s definition.
I hope that the hon. Gentleman is reassured and is able to withdraw the amendment. He is entirely right about amendment No. 141 and we will consider it, as we offered to do in relation to an earlier amendment.

James Brokenshire: I thank the Minister for her comments. My amendment is intended not to limit scope, but to add clarity and afford protection to, for example, a vulnerable group being misled by how a company describes itself, and to allow the Secretary of State to act in such circumstances.
I hear what the Minister says about significant numbers of people. Perhaps that underlies my concern about the meaning of a “significant” number of people. It might mean a significant number of people covering all sorts of groups from the young to the very old. It might also mean a particular section of the public being targeted by a misleading term. I want to be clear about whether that is covered by the clause.

Vera Baird: It is pretty clear that a “section of the public” will not cease to be part of the public because it has a particular characteristic. I think that that is the reassurance the hon. Gentleman seeks.

James Brokenshire: I thank the Minister for her intervention. The amendment has been tabled because “the public” and “section of the public” are legislative concepts; it would cover both angles and ensure sufficient protection. It is not fanciful, and this is a contextual use that has cropped up in other legislation. I call to mind the securities legislation in which an offer to “the public” can be made. However, a further distinction is drawn about what “the public” means. In that context, it means 50 people, potentially. I seek clarity. I see that the Minister might have some further information.

Vera Baird: I hope that I can help because I agree that that is an important point. Yes, there can be a difference. In some contexts, “section of the public” is the right terminology, but the Bill is clear that the public are harmed if anybody unconnected with the company is harmed.

James Brokenshire: I thank the Minister for her further clarification on that point. In the light of her additional comments, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 76 ordered to stand part of the Bill.

Clause 77

Change of name

James Brokenshire: I beg to move amendmentNo. 142, in clause 77, page 33, line 35, leave out from ‘78)' to end of line 36.

Eric Illsley: With this it will be convenient to discuss the following: Amendment No. 143, inclause 77, page 33, line 41, at end insert
‘or section 74 (Appeal from adjudicator's decision)'.
Clause 79 stand part.

James Brokenshire: We come to the change of name and the mechanism by which a company is able to do that.
In essence, clause 79 provides a new means by which a company can change its name, rather than by the customary means of a special resolution passed by the members of the company. I acknowledge that we considered a further example during our earlier discussions of a slight change in relation to the ability of directors to change a name where the Secretary of State has given a direction. That is a fairly narrowly defined arrangement, which is reflected in the 1985 Act.
The Bill appears to establish an entirely new mechanism that allows for a company to change its name in other ways, however. I am concerned that if the mechanism is allowed, the shareholders—who would normally be notified by virtue of the fact that their consent would be required through a special resolution—might be cut out of the process if, for example, a right existed in a company’s articles of association for the directors to change the name of the company by board resolution. Although that would give the company flexibility, it is important that shareholders should know the name of the company of which they are shareholders. Such a right, buried deep in a thick pile of articles, might not be picked up on by members of the company, but I would want to ensure that their rights were protected.
It is in that context that I seek the deletion of clause 79 and subsection (1)(b), because of the clarification needed and the lack of real feel about what the position of members is or precisely what situations the Government are contemplating. A very different step change is proposed and, although I recognise the need for flexibility and deregulation, it is also important that the interests of shareholders should be maintained and that they should be properly informed of any changes that might occur to the company of which they are members. That is the underlying reason for my amendment, which would delete subsection (1)(b), and my proposal that clause 79 should not stand part of the Bill.
Amendment No. 143 touches on a slightly different point. It proposes that companies’ names can be changed by order of the court, under clause 74, given that the court is given the power to make any order that the adjudicator might have made on appeal, which could include requiring a company to change itsname. Amendment No. 143 contemplates that circumstance—it does not block it off—and would ensure that the issue was properly addressed.

Vera Baird: May I deal with amendment No. 143 first? We agree that it would be better if the relevant clause contained a complete statement of the various ways in which a company’s registered name can be changed. I therefore agree to consider amendmentNo. 143, which is helpful, and we are grateful for it.
Amendment No. 142 would limit how a company could change its name, but the point of the provisions is to be deregulatory. The amendment would inhibit that purpose by removing part of subsection (1)(a) and all subsection (1)(b). Under subsection (1)(a) as drafted, a company will be able to decide for itself how to change its name. The current position—under which a special resolution is required, except in the circumstances that the hon. Gentleman mentioned, but which the Bill addresses—is unnecessarily regulatory. There is no statutory control on how a company changes the name under which it trades, so why do we need controls on how it changes its registered name?
What is important is that the registered name enables the public to find whatever information there is about the company on the public record, and that they are not misled. Other provisions ensure those desired outcomes, so there is no public need for restrictions on how the company changes its name. I confess that I struggle to understand the injustice that would be done to members who would not know that the name had been changed. I am not sure how realistic that is.
The deregulatory purpose of the Bill is best served by the clause as drafted. I am sure the hon. Gentleman agrees that all unnecessary regulation should be removed, so I hope he will withdraw the amendment.

James Brokenshire: I hear what the Minister says about amendment No. 142, clause 79 and the deregulatory nature of the measure. As I said in my opening remarks, I am not against that deregulation and the requirement for flexibility. My concern is to ensure that there are no unintended consequences and that people are clear about which company they are a member of.
I listened carefully to the Minister and I note that she does not necessarily believe that there is an evil that needs curing. However, this is a matter that we should keep under review to ensure that no prejudice arises.
I am grateful to the Minister for her comments on amendment No. 143, which were most helpful in ensuring that matters are as clear as possible. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 77 ordered to stand part of the Bill.

Clause 78

Change of name by special resolution

James Brokenshire: I beg to move amendment No. 144, in clause 78, page 34, line 4, leave out from beginning to end of line 5 and insert—
‘(1A) Where a change of name by special resolution is unconditional, the requirement of subsection (1) shall be satisfied by forwarding a copy of the resolution to the registrar.'.

Eric Illsley: With this it will be convenient to discuss amendment No. 145, in clause 78, page 34, line 9, at end insert
‘and the company shall forward a copy of the special resolution to the registrar.'.

James Brokenshire: The clause provides the detail of what needs to be filed with the Registrar of Companies in the event of a company changing its name by special resolution. I note what the Minister said in the previous debate about the deregulatory approach, but the clause appears to impose an additional requirement on a company in respect of the change of name procedures.
A company need only forward a copy of the resolution, the requisite fee and a revised copy of its memorandum and articles of association in the event of a change of name, but the clause seems to require a new formal notice in addition. I can understand that where the resolution might be conditional—for example, when a company seeks to be listed on the stock exchange—a company might wish to change its name conditional on its shares being admitted to trading. Therefore, the resolution will not become active, or bite, until that condition is satisfied. In those circumstances, confusion might be caused with the Registrar of Companies as to whether the resolution is valid, hence the probable rationale for including the provision in the Bill.
However, when there is an unconditional resolution—for example, a simple proposal for a special resolution that the name of the company be changed to X Ltd.—I see no need for a formal notice as well as filing a copy of that resolution, which is the reason for tabling amendment No. 144.
Amendment No. 145, which is consequential, would ensure that in the circumstances of a conditional resolution, a copy of the resolution was filed, with an appropriate notice.
The amendments try to be as deregulatory as possible by not requiring an additional imposition on companies changing their names where that is not necessary, while recognising that the Registrar of Companies might be in difficulties in certain circumstances. Therefore, I understand where the original thought processes came from.

Vera Baird: We can only applaud the deregulatory purpose of amendment No. 144, but the Bill’s provision that the name change need not be by special resolution has a far greater deregulatory effect. The scheme of the Bill is to provide a simple system for notifying the change of name, whether or not it is done by special resolution. This will mean that changes of name will take effect more quickly than at present.
Under the current arrangements, Companies House needs to check every special resolution to see whether it includes a name change. That causes delays in processing that might lead to the mischiefs that we discussed this morning. Last year, 143,286 special and written resolutions were filed, of which 56,954 involved a change of name. Requiring this document to be sent in is a useful flag for Companies House showing that the name is being changed.
Amendment No. 144 would retain the existing arrangements for name changes by special resolution, which causes delays in processing because invariably special resolutions contain far more than just the change of name. It is Companies House’s experience that having to dig through a morass of other provisions in the resolution inevitably causes delay.
I hope that the hon. Gentleman will withdraw his amendment because, on balance, we are even more deregulatory than he is here, although I can see how at first sight it does not look that way. AmendmentNo. 145 would put in a requirement that a special resolution should be filed. I understand that that is already in clause 29 and the amendment would duplicate that requirement.

James Brokenshire: I find the Minister’s comments on delay a little surprising in that, under the existing arrangement, it is entirely possible to do a same-day change of name. I had the dubious pleasure of having to do that on many occasions before I entered the House, so I would be delighted if it is possible to do it even quicker under this regime, but I find that surprising.
I hear what the Minister says and I look forward to the express, hour-long, pick-it-up-as-you-wait procedure. It sounds an excellent proposal and I look forward to seeing that working in practice through the mechanisms of Companies House. However, given her comments, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 78 ordered to stand part of the Bill.

Clauses 79 to 81 ordered to stand part of the Bill.

Clause 82

Requirement to disclose company name etc

Question proposed, That the clause stand part ofthe Bill.

James Brokenshire: The clause deals with the Secretary of State’s ability to make provisions by regulation to require companies to display specified information, to state specified information in certain documents and communications and to provide relevant information on request to those they deal with in the course of their business. To a certain degree, the provisions go further than the Companies Act 1985 and the Business Names Act 1985 as far as companies trading under their registered names are concerned. It is also unclear whether the existing requirements will be added to as a consequence of the regulations that are referred to in the clause. Will the Minister therefore provide some guidance on whether additional requirements not made under existing law and practice will be added to as a consequence of the clause and the regulations that will be applied to it?
Will the Minister also clarify the specified information that is to be provided to persons with whom a company deals? Further to my earlier comments, I think that there will be a slight extension of the requirements on companies trading under their corporate name rather than a trading name. Will she tell us why it was felt necessary to change the ambit in relation to such companies?
To what extent will there be further reviews of the regulations? The clause could be applied in a way that would make the system more regulatory and bureaucratic. Given the assurances on the deregulatory approach, I am sure that that is not the intention, but I am concerned that without some background or clarification on what the regulations are likely to include—we have not had sight of the regulations—we cannot look at the clause in much context. We need to know precisely what is intended and whether any further steps or requirements are being contemplated. Given the liability set out in clauses 83 and 84 for a failure to make the necessary disclosures, we must ensure that we do not set difficult or inappropriate targets and requirements on companies.

Vera Baird: The rules relating to trading disclosures are complex. They are set out in chapter I, part XI of the 1985 Act, section 693 of which applies similar rules to overseas companies. There is a separate set of rules in the Business Names Act 1985 that refer to a company trading under a name under than its registered name, even if the only difference is the suffix Ltd or plc. The rules are not identical: the information required and what premises and what documents are involved all vary.
As the company law review recommended, we intend to use the powers conferred by the clause and the similar power provided under clause 666 related to overseas companies to replace all the existing disclosure rules with a single set of regulations. We will consult on the matter and we intend to rationalise the requirements and make compliance simpler for companies. We will not extend the rules; we need the power to regulate in order to replicate sections 348, 349 and 351 of the Companies Act 1985. When we consult on the regulations, they will be subject to the affirmative resolution procedure, so there will be scope for debate on them.

James Brokenshire: I am grateful for that clarification and the assurance that there is no intention to increase the scope of the current requirements. There is merit in seeking to put in one place the current requirements under the Business Names Act and the Companies Act so that we are all clear about what requirements apply. I have no objection to that approach, which has great merit in trying to simplify the situation. I made my points to gain clarification on the scope of the requirements. The assurance that the Minister has given satisfies me.

Question put and agreed to.

Clause 82 ordered to stand part of the Bill.

Clause 83 ordered to stand part of the Bill.

Clause 84

Criminal consequences of failure to make required disclosures

James Brokenshire: I beg to move amendmentNo. 147, in clause 84, page 36, line 12, at end insert—
‘(3) For the purpose of this section a shadow director is treated as an officer of the company.'.
The clause deals with the situation that arises if a company is acting in accordance with the instructions of a person who is not a director—that is to say a shadow director—and those instructions include the non-provision of information under clause 82 on the requirement to disclose the company name and so on. I wish to question why a shadow director should not be liable in such circumstances.
In my review of the Bill, I noted that in other, similar circumstances a shadow director is liable. Why are they not covered by the clause? It is possible that I have missed something, but I wanted to flag up the point. The amendment would therefore make clear that a shadow director should be treated as an officer for the purposes of compliance and therefore of liability in the event of failure to comply. If a shadow director of a company, who is not stated as a director, effectively frustrates satisfaction of the clause 82 provisions, it would be a little strange for that shadow director not to be liable in accordance with the rest of the officers of the company given that, in other circumstances, they would normally be treated in the same way.

Vera Baird: Shadow directors are not liable for failures to make the required disclosures, and we see no reason to widen the clause as proposed. However, I have received a note, which says, “If he has a good argument, we will consider it”. We will consider it, if he agrees to withdraw the amendment; we will go through his points and decide if there should be a change.

James Brokenshire: I am grateful for the Minister’s assurance. It was a question of consistency. In similar circumstances, elsewhere in the Bill, shadow directors are liable, but not here. That struck me as odd, and that issue might apply in other parts of the Bill. I am grateful therefore for her assurance because we might have to examine that matter in other cases to ensure that there is not some gap and that shadow directors cannot in some way squeak out of those provisions. I do not think that that is the Government’s intention, however, and in the light of her assurances, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 84 ordered to stand part of the Bill.

Clause 85 ordered to stand part of the Bill.

Clause 86

A company’s registered office

Question proposed, That the clause stand part ofthe Bill.

Jonathan Djanogly: We move on to part 6 of the Bill, and team No. 1 comes back into play. [Interruption.] No, I did not mean it like that. Before we kick off, may I congratulate my hon. Friend the Member for Hornchurch on his professional delivery, backed up by his extensive experience in the subject before us? That really showed, and totally hid the fact that it was his first outing on the Front Bench—the first of many, I am quite sure.
We move on to part 6 and clause 86 stand part. I would like to make a general point on the registered offices. It is important for a company to have a registered office, not least because it is a single registered location, of which other companies and persons have public notice. That is vital for deliveries, particularly of time-critical documents such as service of court documents, which require proof of service.
Most company documents are filed after an event, as a record of something that has happened, such as a change of director. However, that is not the case with a change of registered office, for which the filing of the notice itself triggers the timing of the date of the change. So it is an important form. The problem is that we hear more and more reports about people impersonating company directors—I brought that matter up last Tuesday. That involves little more than signing a form and sending it to Companies House, but once the fake directors have been established, they can send in a change of registered office form. That effectively means that the real directors stop getting notices of contracts signed in the name of the company by the fake directors using the fake registered office.
That seems to be a growing problem. Will the Minister let us know whether she has any details about the extent of the problem, whether she has plans for further security measures to stop it happening or whether she thinks that it might require further amendments?

Margaret Hodge: I thank the hon. Gentleman for his contribution. I congratulate also my hon. and learned Friend on her valiant performance. This is her first Committee, and may there be many more.
The hon. Gentleman mentions something that has not been raised with me before. Companies House has a system by which it can register and receive notice by e-mail of a change of directors. I am not sure whether that helps. If he has ideas—perhaps from those with whom he has had contact—on how we can tighten the system to prevent such problems from arising, we will consider them. However, it has not been an issue recently and I have no plans to introduce further measures. I accept that it is a problem, but I am not sure what we can do other than introducing the clauses and other legislation relating to fraud and other such matters.

Jonathan Djanogly: There is no doubt that the problem is growing. Some schemes have been put in place. I believe that there is a system whereby companies can register to receive notifications of when changes are made. The notification pops up and advises them that, for example, the registered office has been changed. If it were not the proper directors who made the change, the company would see that. The system is not widely used. Perhaps the Department could consider advertising the process more widely. Other measures are also required.

Margaret Hodge: I have just received a note that may help the hon. Gentleman. It deals with another element. Under what is called “proof”, a company is notified of any change to its particulars. A fraudulent notification should be picked up by that mechanism immediately. Clearly, that depends on the notification being made.

Question put and agreed to.

Clause 86 ordered to stand part of the Bill.

Clauses 87 to 89 ordered to stand part of the Bill.

Clause 90

Re-registration of private company as public

Jonathan Djanogly: I beg to move amendment No. 31, in clause 90, page 38, line 11, leave out ‘a special' and insert ‘an ordinary'.
The clause relates to sections 43(1) and 43(2) of the 1985 Act. I am not sure how long it has been since a special resolution has been needed to re-register a private company as a public company. The Minister may be able to advise me on that. It is one of those things that is lost in the mists of time. It is worth asking, on a probing basis, whether anyone has considered whether it should remain the case that such re-registration is required. I can see why minority shareholders may need protection if a public company is re-registered as a private company—in other words, the other way around—after a takeover or the like, but that is not the case. I wonder why an ordinary resolution should not, in the situation we are concerned with, be good enough.

Margaret Hodge: As the hon. Gentleman rightly said, the amendment relates to a process by which a private company can change its status and become a public company. There is, of course, a substantial difference between the two company types. I understand that many companies will want to make that change at a certain point in their lives.
We have no interest in making that change unnecessarily difficult, but—I hope that this explanation satisfies the hon. Gentleman—it is important to bear in mind the position of existing shareholders in private companies. In some cases they will have become members of the company, whether at formation or at a later stage, with some expectation that it might sooner or later go public, but in other cases there may be no such expectation. A company going public has implications for existing members. The most obvious one is that it brings the prospect of dilution of their control, as the membership base becomes larger and more diverse. Existing shareholders need to be able to take a view on the matter through the special resolution provisions. The 1985 Act therefore provides that there must be a special resolution, which requires a 75 per cent. majority rather than the simple majority required by an ordinary resolution.
When it comes to significant decisions about the company’s status and future which would have important implications for the position of individual shareholders, it is right—I have reflected on this—that the bar should be set high and that something more than an ordinary resolution should be required. That is why we have chosen to continue the existing requirement. I should add that I am not aware of any suggestion that that will cause difficulties in practice.

Jonathan Djanogly: I have to agree with the Minister: I have not had a huge number of representations on the matter. However, I query what she said. The substantive point is that members might be concerned about dilution. That is dealt with separately in section 89 of the 1985 Act which is applied more toughly for public companies than for private companies. In fact, almost every aspect of the 1985 Act will be applied more favourably for minority shareholders of a public company than for those of a private company, with fewer exemptions to override shareholders’ interests. Indeed, after the Bill is passed, only public companies will have a company secretary. We shall debate that later, but let us assume that the Bill goes through in its current form.
I repeat that from the point of view of the minority shareholder, it can only be to their advantage for the company to become public. I understand that the protection of a special resolution is needed the other way around, but not for going up, as it were. I wanted the Minister to think about it, and on that basis I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 90 ordered to stand part of the Bill.

Clauses 91 to 97 ordered to stand part of the Bill.

Clause 98

Application to court to cancel resolution

Jonathan Djanogly: I beg to move amendment No. 32, in clause 98, page 43, line 31, leave out ‘5' and insert ‘10'.

Eric Illsley: With this it will be convenient to discuss amendment No. 38, in clause 98, page 43,line 35, leave out ‘5' and insert ‘10'.

Jonathan Djanogly: These probing amendments are designed to test the relevance and adequacy of the clause, which is clearly a pressure-valve clause. The situation envisaged would typically be related to a bid for a public company. The acquirer will normally wish to acquire at least 75 per cent. of the shares of the target, because at that level of ownership a resolution can be passed to make the target a private company. That in turn is important, because only private companies can use their own assets to give bank security for the purchase of their own shares. In other words, the purchaser uses the assets of the target to finance the transaction.
The clause—I appreciate that the provision is in the 1985 Act—provides holders of at least 5 per cent. of the company with the right to apply to the court to have the resolution to re-register capital. Does the Minister think that the clause is still necessary? Can she provide us with details of how often it has been invoked and whether any assessment has been made of its effectiveness? Is 5 per cent. still considered the right number of shareholders who need to complain? I have suggested 10 per cent. on a probing basis, but maybe the figure could be less than 5 per cent. We would be interested to hear her views.

David Howarth: I want to add a short point in support of what the hon. Gentleman said. Setting the number at 5 per cent. as opposed to 10 per cent. gives rise to a temptation that it might be useful for the law to discourage. If the limit is set at only 5 per cent., people faced with a blocking minority of 5 per cent. might be tempted to use section 429 of the 1985 Act, which, as I understand it, will not be changed. There is a judicial interpretation of that section. It allows, on takeover, those with a 90 per cent. hold of the shares compulsorily to purchase the remaining 10 per cent. It can be used to clear minorities of less than 10 per cent.
Case law from re Bugle Press suggests that that provision cannot be used beyond its original purpose. However, even given that case law, people faced with a blocking minority of less than 10 per cent. might be tempted to use section 429, take their chances with the case law and produce litigation that it would be helpful for the law to avoid. That litigation could be avoided by raising the relevant percentage to 10 per cent., as in section 429.

Margaret Hodge: I have been asked three questions and a supplementary question, although as I listened to the hon. Gentleman’s exposition I saw that section 429 might be consecutive rather than parallel to the issues that we are discussing. I am not sure that its existence prejudges the need for this provision. However, I shall answer the question to see whether I can satisfy him.
When a company is resolved to re-register from public to private, clause 98 enables the dissenting shareholders to apply to the court to cancel the resolution for re-registration. The application must be made within 28 days of the date on which the resolution is passed and the court will only entertain such an application when it is made by a qualifying number of shareholders and, when the company is not limited by shares, a qualifying number of members or, in either case, not fewer than 50 members.
The minimum thresholds for making such an application are set in subsections (1)(a), (b) and (c). When the company that proposes to re-register as private limited company has share capital, the application will be made by a single shareholder or by shareholders with a collective holding of at least 5 per cent. of the nominal value of the company’s issued share capital. The amendment would increase that threshold, and I appreciate that it is a probing amendment. Both amendments leave unchanged the 50 member option and the proposition in clause 98(1) that the members who voted in favour of the resolution for re-registration or consented to it do not count.
The reason behind the clause is that, as I am sure all Members accept, the re-registration of a company from public to private limited is a serious matter which has implications for all the shareholders, members and creditors of a company alike. In view of the significance of the change of status which will bring with it a lack of transferability for the individual’s share and the reduced marketability that is characteristic of shares in private companies, members should have the opportunity to object, subject, of course, to establishing that they represent a significant interest in the company. We accept that there is nothing magical about the thresholds that we made: all we have done, as hon. Members understand, is mirror those in the 1985 Act.

Jonathan Djanogly: Can the Minister give us any idea how often the provision has been used?

Margaret Hodge: Yes, I can. The thresholds have stood the test of time. We are not aware that they have caused companies, their shareholders and members any difficulties. In fact, we are advised by the registrar that only three such applications have been made in the previous year, two of which were rejected. In the circumstances, we are not persuaded that the amendments are either needed or helpful. The hon. Member for Cambridge (David Howarth) asked whether clause 98 was still necessary. The answer is yes, it is. As the hon. Gentleman said, there are special provisions on takeovers in section 429 of the Companies Act but the clause goes wider. Someone may have a majority shareholding by other means and the clause provides them with protection.

David Howarth: The point I was trying to make is that the question is not whether the clause is necessary—I think it is—but how it fits in with the existing law in section 429 of the Companies Act. If one sets up the two statutory provisions in different ways, the temptation will be to use one rather than the other. If they are set up with the same number, one can preserve the use of each.

Margaret Hodge: I suppose that in the interests of protecting minority shareholders, the correct way forward if we want that consistency would be an amendment to section 429. I can take that away and think about it if the hon. Gentleman so wishes. Otherwise the provisions appear to work well. I am told they work in parallel. The one follows from the other, rather than the two having to be consistent overall. There is a lower threshold in section 429 because it covers a takeover so it is a slightly different situation from the one we are discussing. I am happy to reflect further on that and if necessary come back on Report if the hon. Gentleman considers that appropriate.
I hope that I have answered the questions that the hon. Member for Huntingdon (Mr. Djanogly) raised and that he will withdraw his probing amendment.

Jonathan Djanogly: As the Minister said, this was a probing amendment. The contribution from the hon. Member for Cambridge opened up the debate and was a helpful addition. I must admit that I wandered into the question by looking at the Bill rather than precedent. The existence of the case he mentioned means that we should go away and have another look at the issue. I am not entirely convinced that the answer will be to amend section 429, particularly in relation to putting in any kind of percentage, but it might be worth looking again at the 5 per cent. threshold in the clause.
I thought that the provision would be used very little in practice, so I was not surprised to hear that it was used three times in the last year, nor was I surprised to hear that the majority of cases have been thrown out. I suppose that it would typically be people having a go. I am pleased that we have had the debate. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment made:No. 102, in clause 98, page 44,line 14, leave out ‘alterations in' and insert ‘amendments to'.—[Margaret Hodge.]

Clause 98, as amended, ordered to stand part ofthe Bill.

Clauses 99 to 101 ordered to stand part of the Bill.

Clause 102

Re-registration of private limited company as unlimited

Jonathan Djanogly: I beg to move amendment No. 156, in clause 102, page 45, line 21, leave out from end ofline to ‘and' in line 22.

Eric Illsley: With this it will be convenient to discuss amendment No. 66, in clause 102, page 45,line 27, leave out subsection (2).

Jonathan Djanogly: This is a rerun of the debate in the House of Lords. I shall not read out what Lord Hodgson said, but shall instead quote what Lord McKenzie said and comment on it. Lord McKenzie said:
“The Bill reflects existing companies legislation in preventing this practice, and the Company Law Review considered carefully whether the bar should be maintained or removed. It concluded that it should be retained to prevent companies taking short-term advantage of a merely temporary change of status. The Company Law Review does not seem to have believed that this has placed any obstacle in the way of legitimate market developments; nor are the Government aware of any evidence to that effect. I therefore support the CLR’s conclusion that the bar should remain.
I should add that we are currently considering whether the condition in Clause 102(2)(b), which prevents a company beginning life as limited, re-registering as unlimited, then re-registering as limited and finally re-registering as unlimited again”—
complicated stuff, this—
“is strictly necessary given that Clause 105(2) prevents a limited company which has re-registered as unlimited reverting to limited status.”
I hope that people are with me so far. Lord McKenzie continued:
“These highly technical issues are complicated by the need to consider possible multiple re-registrations under earlier legislation. We are considering whether any change is needed.”—[Official Report, House of Lords, 1 February 2006; Vol. 678,cc. GC140-141.]
It is appropriate for me to ask whether the Minister can provide an update on the Government’s thinking on the issue.

Margaret Hodge: The hon. Gentleman said that he would quote only Lord McKenzie. I shall quote the Opposition spokesperson in the House of Lords, Lord Hodgson of Astley Abbotts, who replied, “I surrender absolutely”.

Jonathan Djanogly: That may have related to the complicated nature of the answer as much as to its justification.

Margaret Hodge: The hon. Gentleman is right to suggest that in Grand Committee Lord Hodgson tabled a similar amendment. It was withdrawn, but it prompted us to look again at the conditions in subsection (2), and we put a marker down in Grand Committee that we intended to return to the issue. We subsequently amended the subsection on Report in the House of Lords to remove what amounted to a superfluous condition. If people can understand this one, they will be doing very well. The condition was that a private limited company could not re-register as unlimited if it had previously re-registered from unlimited to limited. Such a condition is unnecessary, as it is not possible for that eventuality to occur, given that clause 105(2), which is concerned with the re-registration of a company from unlimited private to limited, prevents a company that has previously re-registered as unlimited from reverting to limited status. However, we left in place the condition in the amended clause 102(2) which prevents a private limited company from re-registering as unlimited if the company has previously re-registered as limited. The amendments that we are debating would remove that subsection.
Subsection (2), as amended, carries forward the provisions of section 49(3) of the 1985 Act. Like its predecessor, it prevents companies from changing their status successively between limited and unlimited and back again. As the hon. Gentleman said, the issue was examined by the company law review, and it was concluded that it was necessary to keep the bar in place. The company law review did not accept that in practice the bar prevented legitimate market developments, nor are the Government aware of any evidence to that effect. That is why we support the review’s conclusion that the bar should remain in place.

Jonathan Djanogly: On the basis of the Minister’s comprehensive response and what happened on Report in the Lords, I too surrender absolutely and beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 102 ordered to stand part of the Bill.

Clause 103

Application and accompanying documents

Question proposed, That the clause stand part ofthe Bill.

Jonathan Djanogly: We are now going on to a limited company becoming unlimited. Subsections (3) and (4) insert the need for a statement of compliance to replace the statutory declaration in section 49(8)(b) of the 1985 Act. Could the Minister please provide the reasoning behind that?

Margaret Hodge: The clause prescribes the contents of the application for re-registration and the documents that must accompany it. It replaces sections 49(4) to 49(8)(a) of the 1985 Act. The current requirement for a statutory declaration made by the directors on application for re-registration as an unlimited company is replaced by a requirement for a statement of compliance. Unlike most other statements of compliance made under the Bill, the one made on application for re-registration as an unlimited company must contain a statement by the directors confirming that the persons by whom or on whose behalf the form of assent is authenticated constitute the whole membership of the company, and if any of the members have not authenticated the form themselves, that the directors have taken all reasonable steps to satisfy themselves that each person who authenticated it on behalf of a member was lawfully empowered to do so. The contents of the directors’ statement carry forward the provisions of section 49(8) of the 1985 Act, which requires a
“prescribed form of assent to company being registered as unlimited”.
On that basis, I urge Members to support clause stand part.

Jonathan Djanogly: I am not entirely sure whether my question has been correctly answered. Perhaps it was, but it was not a very long response, so if the Minister would write to me on the point, I would appreciate that.

Question put and agreed to.

Clause 103 ordered to stand part of the Bill.

Clause 104 ordered to stand part of the Bill.

Clause 105

Re-registration of unlimited company as limited

David Howarth: I beg to move amendment No. 221, in clause 105, page 47, line 9, at end insert—
‘and,
(d) the consent is obtained of all the company's creditors'.

Eric Illsley: With this it will be convenient to discuss amendment No. 205, in clause 106, page 47, line 27, at end insert—
‘;
(d) a statement confirming that the company's creditors have given their consent'.

David Howarth: The subject of the clause sounds similar to the issues just discussed, but in fact it is fundamentally different. Clause 105 is about the re-registration of unlimited companies as limited. The clause changes the existing law, but only in respect of public companies. The point that I wish to raise is more fundamental.
Unlimited companies are not very common, but they do occur in the financial services sector. The point of an unlimited company is that its creditors have recourse to the private wealth of the shareholders in the event that the company cannot meet its debts, so unlimited status is a way of attracting customers to a business in certain circumstances, because, in effect, the shareholders are underwriting that business. Given equivalent circumstances it makes the company a more attractive body to deal with than a limited company in the same circumstances.
Clause 105 allows unlimited companies to re-register as limited companies, thereby reducing the liability of the shareholders—perhaps dramatically—without any consent from the creditors. The fundamental issue is the balance of interests between creditors and shareholders, and that balance is very different in an unlimited company compared with a limited company. The amendment is therefore intended to test the proposition that creditors’ interests must be taken into account when a company moves from unlimited to limited status.
I do not want to give the impression that there is a lot of malpractice or fraud in this area at the moment, but there is a risk. It might be argued that the provision has been in place for a long time without any particular problems. However, in Tuesday’s sitting I mentioned the case of Equitable Life, which was an unlimited company. The circumstances of that case were different in that Equitable Life did not have shareholders in the same way, so the issues did not arise in precisely the same manner as I am suggesting today. Nevertheless, that example shows that there are large undertakings that are unlimited companies. There is a serious potential problem, and it would be just as well for us to consider it and try to provide for it before it turns into a real-life case.

Jonathan Djanogly: I have some sympathy with the Liberal Democrat amendments. People often deal with an unlimited company on the basis that there is no limit to the members’ liability. If they entered into the same transaction with a company that was limited, they would want to see other elements in the transaction, such as security, or a deposit, or a charge. If the company with which they have transacted subsequently becomes limited it would be fair to take their interests into consideration.

Margaret Hodge: I understand the point that is being raised by the hon. Gentlemen, in that with an unlimited company liability is not defined—although I do not entirely accept that that would give the sort of comfort to which the hon. Member for Huntingdon referred—whereas limited companies, by definition, have a limit on their liability. I can understand, therefore, why the hon. Member for Cambridge believes that there might be a role for creditors when an unlimited company re-registers as an limited company. The amendment would ensure that they are consulted and given a role. However, I am informed that such issues are tackled in other ways, which we believe to be sufficient. I hope that that argument will be accepted.
At the moment, the law provides that when a company is wound up within three years of having been re-registered as a limited company, having previously been unlimited, the liability of its original members remains.

Paul Farrelly: We have seen such situations, although more often in the US than here. Will my right hon. Friend the Minister confirm that the amendments would allow a creditor to blackmail a company and resist its move to limited status, even if that was in the wider interests of the company and perhaps those of other creditors?

Margaret Hodge: I entirely accept that that would also create difficulties and I am grateful to my hon. Friend for raising that valid point, which had not been brought to my attention.
Whether or not the company changes status, liability remains on the original member of the unlimited company, which remains unlimited in respect of any debts and liabilities contracted up to the point of re-registration. That provision is contained not in this complex bit of legislation, but in section 77 of the Insolvency Act 1986. We have no plans to change it, as it provides proper protection for creditors without the sort of danger exposed by my hon. Friend. Arguably, it is also simpler. I hope that, with that explanation, the hon. Member for Cambridge will withdraw the amendment.

Quentin Davies: I seek clarification. I have been following the debate with much interest and the Minister has made an interesting point. Is she saying that the details of the insolvency law to which she referred provide that if an unlimited company changes its status to limited, the existing shareholders retain their unlimited liability for all that company’s debts for three years?
The implication is that at the end of those three years, unlimited liability would fall away. Let us suppose that a company, when unlimited, had undertaken a loan agreement that matured after more than three years—say, after five or ten years—and had done so on the basis that it could look to the private capital of shareholders, beyond the paid-up capital of the company. The creditor would find that that assumption had been invalidated retrospectively. If he had been well advised, he would be covered by some kind of covenant and loan agreement. I accept that, and we anticipate that response. However, in making the law, we try to defend those who are not necessarily sophisticated or well advised.

Margaret Hodge: I accept the issues and complexities raised by the hon. Gentleman. However, if a company changed from having unlimited liability to limited liability, I would have thought that most of its creditors would take appropriate advice to ensure that they secured their interests over time, as the hon. Gentleman suggested. I accept that the eventuality that he describes may arise, but that three-year limitation runs through most of the law.

Quentin Davies: With respect, the Minister has not satisfied my concern at all. She has simply confirmed that in my example the regime would have been changed retrospectively to the—perhaps significant—disfavour of the company creditor, who would be able to do nothing about it.
If the creditor had been sufficiently sophisticated and well advised in advance, he might well have insisted on an appropriate covenant in the loan agreement. However, if he had not, it would be too late for the creditor to protect himself once the unlimited company had declared its intention to go limited. The danger to which I have alluded is real and the law should be designed to protect those who are not necessarily sophisticated or properly and completely advised.

Margaret Hodge: I do not know whether this is helpful to the hon. Gentleman, but if the loan was unlikely to be repaid, the company, having become limited, would presumably become insolvent.
Mr. Daviesindicated dissent.

Margaret Hodge: The hon. Gentleman is shaking his head, but as I understand it, the three-year limitation runs through most legislation and would have an impact. I accept that, in the situation that he describes, he has a point, but I am not sure that, in framing the law, we can do anything that would better protect the interests of the individual beyond that limitation. I am not sure that the creditor having the right of veto on the change of status would be the best way forward. Presumably that is what the hon. Gentleman would suggest if he supports the hon. Member for Cambridge’s amendment.

Quentin Davies: There is another way forward that the Minister should consider. That is to stipulate that liabilities that are in existence and have been contracted on the assumption that shareholders are liable on an unlimited basis would remain indefinitely, or at least until the term of those liabilities as established in the relevant loan agreements or other contractual terms. That would mean that it would not be possible for someone who had made a loan or supply of credit in good faith to an unlimited liability company would subsequently find that the regime had been turned against them retrospectively and the quality of the asset in their hands had been degraded because the company decided to change its status from unlimited to limited. That would mean for existing liabilities that the regime that applied at the time that they were contracted would remain until the term of that liability. All new liabilities would be contracted with the company under its new status. That is another way forward.
It often happens in Committee that we come across problems that some of us had not anticipated. That is a good thing. I have not had a chance to prepare an amendment on this issue but, in light of the discussions taking place between the hon. Member for Cambridge and the Minister, I think it is a point worth pursuing. I have not just come forward with a problem; I have proposed a possible solution.

Margaret Hodge: I appreciate the hon. Gentleman’s comments. This has been an interesting exchange. I am happy to consider the idea further if that is helpful, but let me try to reassure him. I am advised that if a creditor finds that the loan that he made has not been repaid, that creditor could seek the winding up of the limited company. In so doing, he would have priority over the remaining assets to get repayment of the loan. In those circumstances, there is a mechanism open to him.
If the hon. Gentleman is not happy with that explanation, I will write to him and we can have an exchange of correspondence on the issue and return on Report if necessary. I will copy Front Bench spokespeople into that correspondence. It strikes me that there are other provisions that would deal with the situation. Perhaps I am not explaining very well.

Quentin Davies: I can see no provision in the text before us providing for a creditor to seek the winding up of a company simply because that company is proposing to change its status from unlimited to limited. Nor should there be such a provision because it would open up exactly the possibility of blackmail that has been raised. We do not want that. We want merely to ensure that when a creditor and a debtor contract with each other—when two firms come together under a certain regime and, in good faith, draw up a contract that leads to an asset on one side and a liability on the other—the quality of that asset and liability should not be retrospectively changed in a way that cannot be predicted by the parties to the initial contract. That is why I suggest that the existing liabilities should continue to be unlimited.

Margaret Hodge: I think that the hon. Gentleman misunderstands. I was not suggesting that the point of transfer of the company from an unlimited status to a limited status would be the point at which the creditor would attempt to exercise their rights under a contract that they had entered into. I was suggesting—to go back to where we were—that all creditors of companies that change from being unlimited to limited are protected for three years under the InsolvencyAct 1986. The issue that the hon. Gentleman raised was what would happen if the loan that the creditor gave to the originally unlimited company only required repayment in five years. I was trying to say that, in those circumstances, the company would have been established as a limited company and a creditor with a claim against it could seek the winding up of the then limited company, if that company refused to meet the loan.

Quentin Davies: With respect, the Minister has not followed me. Let me give a precise example. On day one, a creditor—for instance, a bank or supplier— contracts with a company to lend money or to deliver goods on credit. One year later, the company decides to change its status, and three years after that, that change of status is confirmed for all purposes, so that no liability can return to the shareholders on an unlimited basis.
Let us suppose that the term of the original liability is five years. In other words, the loan is not callable until one year after the end of the three-year grace period, which the Minister has just explained. In those circumstances, at the end of the three years, the creditor can do nothing. It cannot put the company into insolvency because the loan has not matured. Nor can it demand the prepayment of the loan. However, the credit status of the loan has been degraded by virtue of the fact that the shareholders are no longer liable for the loan on an unlimited basis.
A year later, the loan duly matures. The question then arises as to whether the company becomes insolvent, but at that point the shareholders are no longer liable for the loan on an unlimited basis. That is an enormous change and might mean that what would have been a good asset in the hands of the creditor has now become a bad asset, and what would have become a liability to be fulfilled on an unlimited basis will not be fulfilled on a limited basis a year after the end of the three-year grace period.

Margaret Hodge: I understood that; clearly we are not reaching each other in our exchange. I have been passed a note that might be more helpful. I have not read it myself. It says that creditors will not have to wait for five years, if the company is insolvent.

Quentin Davies: It is not insolvent.

Margaret Hodge: If a loan is due two years after a company changes its status to a limited company, the status of that loan will change.

Quentin Davies: What about four years after that?

Margaret Hodge: It does not matter—the point is that it is after three years. At that point, although the status has of course changed from unlimited to limited, there is still a loan against that company. If the creditor does not receive the moneys due to him at that point, he can seek to have the company wound up. I accept that that is not the same comfort as with an unlimited company, but it is not like the creditor has no comfort at all.

Paul Farrelly: I would like to raise a different point that demonstrates why my right hon. Friend is absolutely right to resist the Liberal Democrat amendments. Any good lawyer—the hon. Member for Cambridge is an excellent lawyer—would wish to see at the end of such an amendment, “such consent not to be unreasonably withheld”. That is not there.
For example, a good reason to move from being an unincorporated to a limited liability company is to ease the path towards flotation. One reason to float on the stock exchange might be to pay off loans or liabilities with creditors. It is quite conceivable that a creditor who wished to have part of the action from a flotation, but was denied it, could veto a company’s progress and flotation. In those circumstances, consent would have been “unreasonably withheld”. Those words are not in the amendments.

Margaret Hodge: I agree entirely. I shall have one last go with the advice that I have been given.
Let us imagine that a creditor, described in the terms that the hon. Gentleman described, is concerned that a limited company is unable to repay a loan. I am advised that that creditor, within the three years in which they are covered by the Insolvency Act 1986, could seek to have the company dissolved on the basis that it could become insolvent by not meeting the loan repayment terms. That might be the answer that the hon. Gentleman is looking for. If not, we will have to settle the matter through correspondence.

Quentin Davies: May I ask the Minister for the reference to the insolvency provision? Also, what criteria would need to be met for such a petition to be granted?

Margaret Hodge: The provision is section 77 of the Insolvency Act 1986, and I am told that the criteria are as in any other case. I hope that the hon. Gentleman is happy with that. He has raised a valid point. He can write to me, and I will let hon. Members see it. We can return to it on Report if there is something that we have omitted.

Quentin Davies: I am conscious, Mr. Illsley, that you have been gracious in allowing me to intervene on the Minister on a number of occasions. I hope that that exchange has been useful in clarifying the issue. So as not to trespass too much on your patience, I thought that I would make it clear where I am coming from.
The exchange with the Minister has persuaded me not only that there is a problem but that it is probably more important than I first envisaged, and it is not adequately dealt with by the insolvency rules that she described. I think that the Committee would agree that it is important to provide a mechanism for companies to change their status from private to public without undue burdens or hindrance. An instance has already been mentioned of a company that wants to float. That is a sensible move, but we simply want to provide the maximum flexibility. We want not to inhibit but to encourage and nurture the growth of companies. That is the object of the Bill.
The Bill should not provide anybody—we have been conscious on many occasions of a difficulty in this context—with opportunities for greenmail or blackmail or to exert pressure to prevent people from doing what they seek to do in good faith and in their own rational business interests. It should not provide them with some toehold in the law that enables them subsequently to claim money from people engaged in ordinary business in good faith. We do not want the measures to form a basis for greenmail or blackmail, and we do not want to give creditors the opportunity vexatiously, perversely or exploitatively to prevent companies from changing their status. That is common ground.
This is where the Minister and I disagree. We do not want to solve the problem by creating a worse one. Above all, we do not want to create a situation in which companies are needlessly put into or threatened with insolvency. This is my central response to her: I do not believe that the insolvency rules are the right answer to my question. Nor do I think that a three-year carry-over—I shall use that word rather than the term “grace period”—of unlimited liability is adequate for the simple reason that three years is entirely arbitrary. Some of a company’s liabilities will be for longer than three years.
Equally, it does not make any sense to protect new creditors—that is, creditors who contract with a company after the company has changed its status to limited liability—which would not normally be available to the creditors of a company with limited liability. Three years does not make any sense for either group of creditors: those who are contracted with the company concerned before the change of status or those who contract with the company after the change of status or during the first three years.
It seems to me that the simple answer is to say that a company cannot change retrospectively its relationship with a creditor by changing its status as a company, changing the basis on which its suppliers, lenders or other creditors will deal with it in future. That answer would be fair, transparent and in accordance with a common-or-garden understanding of how things work. It should not be possible for shareholders, simply by changing the status of the company, to protect themselves against any liability that they find onerous or threatening to their private wealth outside the paid-in capital of the company in which they have invested.
I shall give some simple examples. There might well be a company with a net worth of, let us say, £1 million and liabilities of £4 million. That is quite a high leverage but creditors and suppliers may well be happy with it because they know that the shareholders are people of substance. They probably do not know their exact net worth but they know that it is many tens of millions of pounds. They therefore feel totally relaxed dealing with a company on that basis and they might enter long-term contractual lending arrangements with the company.
Then suddenly one day the company announces that it will change its status. Immediately the credit quality of all the assets in the hands of the creditors deteriorates markedly. The creditors may then have worries about their claims on the company once it has changed its status. There would then only be a net worth of £1 million of assets securing their claims of £4 million. Some deterioration in the company’s position could then make their claims worthless or discountable. In those circumstances, under the Minister’s proposed arrangements, the creditors would have some protection for three years. After that they would not, and they would be completely done for.
It may well be that people outside the Committee following our debates will ensure that they are thoroughly protected against such a possibility in whatever contractual or lending arrangement they enter and ensure that there is a contractual possibility of winding up a company in the event of its changing its status. That is an enormously heavy-handed type of protection to have to propose. We want protection that is fair and deals only with the liabilities incurred by a company before its change of status. It should also be unlimited in time, because any arbitrary limit would not cover longer-term contractual or lending arrangements.
I have set out the problem at slightly greater length than I intended. I hope that, rather than expect me to send her a copy of Hansard, the Minister will take my oral communication as an invitation to re-examine the matter and to see whether she can return with a better solution.

David Howarth: Having listened to the debate, I believe that it comes down to how one sees the original deal between and unlimited company and the person who enters a contract with it. There is a sophisticated view of such a contract that the person lending the money does so on the basis of the specific provisions of company law and those in the 1986 Act. The answer to complaints would therefore be, “Well, you contracted on the basis of the existing statute law.” The powerful objection to that view is that it is too sophisticated a way to consider the contract for an ordinary person making a deal with a company to be forced to follow and that in reality nobody makes contracts on such a basis. Under such a view, we would require anyone dealing with unlimited companies to take sophisticated legal advice to allow them do so safely.
The other equally absolutist view of such contracts is the one expressed in the amendment—that they are agreed between the lender and the company on the basis that the company is unlimited. A change in the company’s status, from unlimited to limited, is, in a sense, a breach of that agreement, changing the basis on which the agreement is reached by the creditor.
That absolutist view gives rise to the drafting of the amendment, which I concede would put a veto power into the hands of the creditor. If one wanted to defend that approach, one could say that the contract was like any other contract, and that a person who enters into a contract with somebody else has a veto in the sense that the other side is not allowed to change their promise unless that person says so and gives them permission.
I accept that the view expressed by most hon. Members today has been a third view of the contract, which is that the parties agree on the basis that the company is an unlimited company, but that each side also allows the other reasonable leeway to change their status or basis of the deal, given ordinary commercial developments, including the desire of a company to go public, for example.
Given that that seems to be the most widespread view in the Committee, it seems that the best thing for me to do is ask leave to withdraw the amendment in its present form, but reserve the right to return on Report with an amendment that does not follow the other absolutist view of the contract, which appears to be the Government’s view.

Quentin Davies: On a point of order, Mr. Illsley. I believe that we have made some progress this afternoon in clarifying the issue. In the light of the hon. Gentleman’s comments and his reference to a third way and to coming back on Report, my inclination is also to come back on Report with a third way enshrined in the form of a proper amendment. Would it be normal practice for such an amendment to be at least deemed acceptable—I cannot ask you to undertake to ensure that it is accepted—and therefore potentially debatable on Report, even though it would cover a point that we had debated extensively in Committee? Such an amendment could advance a solution that we have not been able to debate concretely, because we have not had the opportunity to table an appropriate amendment or new clause in Committee.

Eric Illsley: It would be for the Speaker to determine whether that was acceptable. The question is hypothetical, so it is difficult to make a decision, but I take on board the hon. Gentleman’s point, and we will provide him with some advice privately before the end of the Committee stage to clarify the issue. I hope that that deals with his point of order.

David Howarth: On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 105 ordered to stand part of the Bill.

Clause 106 ordered to stand part of the Bill.

Clause 107

Issue of certificate of incorporation on re-registration

Question proposed, That the clause stand part ofthe Bill.

Eric Illsley: With this it will be convenient to discuss Government new clause 5—Statement of capital required where company already has share capital.

Margaret Hodge: An issue arises here that we said we would return to following Report in the Lords, when we amended the Bill to remove the requirement for a statement of capital to be provided where an unlimited company that has not previously had a share capital re-registers as a company limited by shares. The requirement for a statement of capital was considered unnecessary in those circumstances, as the company will be required to make a return of allotments to the registrar under clause 545 when it makes an allotment of shares after its registration. That return must be accompanied by a statement of capital. In short, we removed the potential duplication of an information requirement.
We indicated then that we might need to return to the question of whether there were any circumstances in which an unlimited company should be required to provide a statement of capital on its re-registration as a limited company. The amendment is the outcome of our deliberations on that point.
The new clause requires unlimited companies that already have a share capital at the date of application for re-registration as limited to deliver a statement of capital to the registrar within 15 days of their re-registration as a limited company unless that information has already been provided in some other way.
The amendment is required to ensure consistency of treatment between companies that are already limited by shares on the one hand and unlimited companies having a share capital that re-registers companies limited by shares on the other hand. Companies limited by shares are required to file a statement of capital whenever they make an alteration to their share capital which affects their total subscribed capital and whenever they make a new allotment of shares. In other words, they are effectively required to keep the publicly accessible statement of capital up to date.
By contrast, unlimited companies that have a share capital are not subject to the same requirements for real-time reporting, so to speak, of their capital base. Instead, they must provide a statement of capital once a year with their annual return. That means that there is often a time lag. For example, the share capital information on an unlimited company with a share capital that provides an annual statement in January, allots new shares in July and re-registers as a company limited by shares in December, will be many months out of date when the company re-registers.
One option for addressing that difference would be to require all unlimited companies with a share capital to make statements of capital on the same basis as companies limited by shares. That seems an unnecessary burden.

Jonathan Djanogly: Would not that take away one of the advantages of being unlimited?

Margaret Hodge: I do not follow that point.

Jonathan Djanogly: I make the point in so far as one of the advantages of being unlimited is not having to disclose things that limited companies have to disclose.

Margaret Hodge: In this case, however, in relation to statements of capital, we suggest that such information should be disclosed. If the hon. Gentleman sees that as an advantage, then yes, the proposal would change the companies’ position.
The new clause requires companies that re-register to provide an updated statement of capital within 15 days unless the same information has already been provided in another way, thus ensuring that publicly available information remains up to date.

Jonathan Djanogly: I am sure that some company out there will read the Minister’s comments and thank her for clarifying the issue. We have nothing to add, and will not oppose the new clause.

Question put and agreed to.

Clause 107 ordered to stand part of the Bill.

Clauses 108 to 110 ordered to stand part of the Bill.

Clause 111

The members of a company

Question proposed, That the clause stand part ofthe Bill.

Jonathan Djanogly: We have now moved to part 8 of the Bill, which deals with members of a company. I shall make two points, on subsections (1) and (2).
First, in respect of subsection (1), Lord Hodgson tabled an amendment to the clause suggested by the Law Society to seek to clarify whether a specific allotment of subscriber shares was required following the company’s registration. He proposed the amendment on the basis that there was confusion in the 1985 Act. He felt that the clause did not make it clear whether the shares in a company are allotted to the subscribers on the registration of the company or whether a formal allotment and the filing of the return of allotments was necessary, and he felt that that should be clarified.
The amendment was withdrawn as Lord Sainsbury agreed to consider the matter further. To be frank, he may have done so—I may have missed a proposal, as we have been swamped with Government amendments on this Bill—but in any event, I would appreciate the Minister’s clarification of the point.
Secondly, subsection (2) in many ways deals with the core of the concept of ownership. It states:
“Every other person who agrees to become a member of a company, and whose name is entered in its register of members, is a member of the company.”
When a share is transferred, the person who agrees to become a member needs to have the stock transfer form duty stamped before it can be entered in the register of members. Without that, beneficial ownership exists, but legal ownership cannot do so. To pay stamp duty, one would take the stock transfer form and a cheque down to Bush house, but now that service has been abolished and there is a postal period of supposedly up to 10 days before stamp duty can be paid and therefore entry made in the register under clause 11 too.
Why did I bring up this matter? I did so because solicitors and others who have to pay stamp duty before they can register the transfer have been complaining about it. A solicitor wrote to me and complained that they heard that delays of much more than five days are occurring. One lawyer told me that he had to chase a delayed transfer and was advised that Bush house had no mechanism for checking the progress of forms, as apparently it was inundated with stock transfer forms and had a huge backlog. He was told that his best option would be to call up his bank and check to see whether his cheque had cleared. That was not appropriate.
I wrote to the Secretary of State on this matter, and it was duly handed over to the Treasury, which I found inappropriate. I am not arguing from a tax point of view; I am arguing from the point of view of subsection (2), which relates to people wanting to transfer their shares and be entered as members of a company. I am not talking about whether they have paid the tax or about how they have done so. That is a mechanical issue that should be got out of the way as soon as possible so that people can comply with the provision.
Nevertheless, the matter was handed over to the Treasury, which was not the right thing to happen, and I received a reply from the Economic Secretary:
“Following the introduction of stamp duty land tax, there has been a significant reduction in the number of documents that require stamping, and the number of personal callers at the London counter has declined over recent years.”
The reply went on to explain that the office was therefore closed on 31 March, and it continued:
“Completed stock transfer forms, along with payment of the stamp duty, are all sent to the London Stamp Office at Bush House. HMRC has undertaken to process documents within its published five-day turnaround time provided that the correct payment is made at the time. Feedback so far under the new arrangements has been good, with customers happy with the level of service they are receiving. There have been very few complaints from customers affected by the counter service closure about the speed with which documents are handled and returned. You have been told that, in some cases, longer delays are occurring. Practitioners may have experienced turnaround times of more than five days after the London office counter closed, due to the unusually high volume of prepaid forms received. However, the resulting backlog of work is now being cleared and customers should no longer experience delays above the published turnaround time. HMRC has also put in place contingency plans to enable it to meet its published turnaround times for stock transfer forms should high volumes occur in future.”
On that basis, I thought that progress was being made, until on 19 June I received another e-mail from another solicitor, which I assure the Minister was totally unsolicited. It stated:
“The loss of the over the counter facility at Bush House is a nightmare—we sent the form on 1 June but have had no acknowledgment other than verbally that they ‘have a backlog’ and can’t even tell us they have received the transfer yet! I can’t register the transfer and finish off the...work.”
I deleted an expletive there. It continued:
“No doubt they have hundreds of people answering the phones to tell all the frustrated users similar things. Is something being done about this example of Government incompetence?”
That is the situation. While one arm of Government—in this Committee—is trying to deregulate, another arm, the Treasury, is slowing down the whole process. In practice, this arrangement is very inconvenient to practitioners, because it requires the buyer to have the sellers enter into a trust deed so that before registration of the transfer, the sellers, who remain as legal owners, promise to act as the buyer wishes in respect of the shares. That is not good practice. It is creating more red tape for companies and I ask the Minister to assure us that she will address the issue so that transfers and entry in the register can be speeded up.

Margaret Hodge: The purport of that contribution related not to whether the Bill is correctly drafted in the way that members of the Committee find acceptable, but to the running of the stock transfer system by the tax office. I assure the hon. Gentleman that he is doing the right thing in raising matters with the Economic Secretary and that he should continue to do so. Implementation is a matter for my hon. Friend and HMRC, not a matter for consideration under the Bill.
The only other point that I want to make is that the clauses were considered in another place andclause 16(5) now makes it clear that subscribers become the holders of shares that are taken by them on formation. That may sort out the position of those who have a transfer.
The hon. Gentleman’s point seemed to be one of implementation. It has not been raised with me, but it clearly has been raised with the hon. Gentleman most recently. He should therefore take up the matter with the relevant Departments and Ministers.

Jonathan Djanogly: I am talking about the practical implementation of the clause. In order to be registered as members of a company, people have to pay stamp duty before they are registered. People are paying stamp duty, but they cannot register because their payment is not being accepted. The Minister says that I should write to the appropriate person. I did that. I wrote to the Secretary of State for Trade and Industry. The fact that he took it upon himself to send my letter to the Treasury shows me that he did not understand the point that I was making. It is not a Treasury matter. It is a problem for the Department of Trade and Industry. The Treasury wants to do its own thing. I am saying that the problem is for the Minister’s Department. She must get a grip on it so that the practical implications of the clause can be realised and so that practitioners and those who want to be registered as members can do so.

Margaret Hodge: The issue before the Committee is whether the process as we have defined it in the Bill is appropriate. Nothing in the hon. Gentleman’s contribution suggests that the process is anything other than correct. He described problems with implementation that have been drawn to his attention. Because in this instance implementation is a matter for the Treasury and HMRC, it is an issue that he must raise with appropriate Ministers. Obviously, in relation to the Bill we wish registration to take place as quickly as possible.

Jonathan Djanogly: If the Minister would at least offer to approach the Treasury and move it along a little on the issue, that may be of great help to many companies and individuals who want to transfer their shares and register them.

Margaret Hodge: The hon. Gentleman is referring to a tax issue, and I shall draw it to the attention of my hon. Friends who have responsibility for such matters.

Jonathan Djanogly: There are implications for your Department.

Margaret Hodge: We want registration to take place as quickly as possible. That is clearly in everyone’s interests. It seems that what has been drawn to the hon. Gentleman’s attention is a delay in the tax process, which, as much as I might love it to be my responsibility in some ways, as it would give me access to some of the revenue as well as collection responsibilities, is not a matter for my Department. I undertake to let the relevant Ministers in the Treasury have copies of the Hansard report of what the hon. Gentleman has said and see what response we receive from them.

Question put and agreed to.

Clause 111 ordered to stand part of the Bill.

Clause 112

Register of Members

Jonathan Djanogly: I beg to move amendment No. 23, in clause 112, page 50, line 17, after ‘addresses', insert
‘(which, for the avoidance of doubt, need not be a home address)'.
The clause relates to section 352 of the Companies Act 1985. Later I shall speak more fully on the problems caused by access to home addresses on the register of members. At this point, it is worth clarifying that there is no need to use a home address on a share transfer form or in the register of members. A service address can be used, such as that of a person’s accountant, bank or post office. Of course, having the name appear on the register, whatever the address, can create its own problems, particularly if the name is a rare one, which is why the ability to deny access is important, as we shall discuss later.
I would like to receive the Minister’s confirmation of one aspect of the matter. The July 2002 consultation document, “Regulatory Impact Assessment on Disclosure of beneficial ownership of unlisted companies” noted that the current registration system does not reveal any information regarding the beneficial ownership of shares. For that reason, the document noted, attempting to establish the ownership of the company by referring to the register has its limitations, as there is no means of discovering who beneficial shareholders are. To solve that problem, those responsible for the RIA were asked to consider a proposal put forward by the DTI and HM Treasury that a person must disclose to a private company, once their beneficial interest in shares exceeds 3 per cent.. The company would then be obliged to enter those details on a subsection of the register of members. Will the Minister confirm that that proposal will not now be proceeded with?
I would also appreciate the Minister’s clarification on a slightly different topic, which was raised in the Lords. I tabled a written question, to which I received a reply on 2 May. I asked:
“How many registered companies have issued stock?”
The response that I received from the then Minister was:
“Section 121(c) of the Companies Act 1985 permits a company to convert any or all of its paid-up shares into stock, and reconvert that stock into paid-up shares of any denomination. There are no available figures on the number of existing, registered companies that have used that procedure. However, the ability to convert shares into stock is to believed to be obsolete.” —[Official Report, 2 May 2006; Vol. 445, c. 1365W.]
Can we not now just get rid of stock?

Margaret Hodge: On the last point, I asked the same question in preparation for various clauses in the Bill. I was told that while it was obsolete, we could not guarantee that there was none still around. We have to carry on with the provisions until we are certain that it has all disappeared from the face of the Earth. I know, it is one of those awful things. On the first point, I assure the hon. Gentleman that we are not proceeding with the proposal to which he alluded.
I will speak generally to amendment No. 23, which I think is similar to one that was tabled in another place. One way in which members of a company may wish to protect themselves against attempts to harass or defraud them is by giving the company a service, rather than a home, address. That is already possible. However, on Third Reading in the other place, when a number of amendments were made to part 8, which deals with company members, specific provision—clause 793—was inserted to draw attention to the point. As hon. Members know, clause 793 provides that
“Any obligation under the Companies Acts to give a person’s address is, unless otherwise expressly provided, to give a service address for that person.”
We recognise the importance of those matters, but we doubt that the addition of a second provision for the avoidance of doubt would serve any useful purpose. I hope on that basis, the hon. Member will withdraw his amendment.

Jonathan Djanogly: On the basis that the Minister has explained where the provision is—somewhat later on in the Bill—I am happy to beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Eric Illsley: May I clarify with the hon. Gentleman, he referred to questions of stock in his remarks on amendment No. 23. Does he intend to move amendment No. 67?

Jonathan Djanogly: No.

Clause 112 ordered to stand part of the Bill.

Clause 113

Register to be kept available for inspection

Jonathan Djanogly: I beg to move amendment No. 24, in clause 113, page 51, line 15, leave out ‘is registered' and insert
‘has its principal place of business'.
We are now dealing with what is currentlysection 353 of the Companies Act 1985, which deals with the location of registers. Subsection (1) and allows for the register to be kept at a location other than the company’s registered office in specific circumstances. Clause 113 requires the register to be available for inspection at a specified location, which can be the company’s office or another place in the part of the United Kingdom in which the company is registered.
The amendment is probing. It would change the clause to provide for the register to be kept available for inspection where the company has its principal place of business. The point is that that could help to prevent companies from getting up to no good. Let me explain. It might be attractive for a company based, say, in London that wanted to avoid inspections to use a company that was registered in Northern Ireland, for example, which would make access to registers a much more difficult business. The purpose of the amendment is to prevent that.

Margaret Hodge: The hon. Gentleman is right to say that the clause differs from the existing provision in that it refers to where the register is kept available for inspection, rather than simply where it is kept. That is because where electronic registers are kept is debatable, and they may be updated from various locations; what matters is where they are kept available for inspection. We hope that the new formulation will remove any difficulty that might have arisen when, for example, a company with its registered office in Scotland employed a commercial registrar in England.
However, because the courts of a country in which a public register is kept have exclusive jurisdiction over entries in that register, it is essential that the jurisdiction in which a company’s register of members is kept available for inspection is not subject to change, as it would be if the amendment were agreed. I was slightly puzzled by the hon. Gentleman’s contribution in that respect. The jurisdiction over a company’s registered office is fixed on the company’s incorporation, and clearly that jurisdiction’s courts should always apply to its register of members.
I hope that that reply has alleviated the hon. Gentleman’s concerns, and that he will withdraw the amendment.

Jonathan Djanogly: The Minister has confirmed the existing position, and I think that I have made my point. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 113 ordered to stand part of the Bill.

Clause 114

Index of members

Jonathan Djanogly: I beg to move amendment No. 25, in clause 114, page 51, line 34, leave out ‘50' and insert ‘100'.
The clause relates to section 354 of the Companies Act 1985, which deals with the index of members. It was debated in the Lords, where Lord Hodgson proposed an amendment that only companies with more than 100 members, as opposed to the 50 currently specified in clause 114, need keep an index. He pointed out that
“Fifty is not such a large number that it requires an index. Up to 100 members...could easily be examined by an ordinary shareholder without needing an index.”
Lord Sainsbury responded that he doubted that
“many companies with more than 50 members do not currently keep their register of members electronically”—[Official Report, House of Lords, 1 February 2006; Vol. 678, c.GC148]
and that the amendment would therefore have little practical impact. To move the matter forward, I would add that Lord Sainsbury may well be right, but we still believe that the amendment would be a worthy deregulatory move, and we ask the Minister to reconsider.

Margaret Hodge: For the sake of speed and trying to move us on this afternoon, I have to say that our view has not changed from the one expressed by Lord Sainsbury in the House of Lords. We think that the impact of the amendment will be minimal, and that the change is not a particularly sensible one that we ought to pursue.

Jonathan Djanogly: In the same spirit of wanting to move on, I hear what the Minister has to say and on that basis I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 114 ordered to stand part of the Bill.

Clause 115

Rights to inspect and require copies

Jonathan Djanogly: I beg to move amendment No. 26, in clause 115, page 52, line 10, leave out from ‘inspection' to end of line 12 and insert
‘of any member of the company without charge, provided that each such member to whom the register is disclosed owns 5 per cent. or more of the issued share capital of the Company.'.

Eric Illsley: With this it will be convenient to discuss the following: Amendment No. 27, in clause 115, page 52, line 21, after first ‘the', insert ‘precise'.
Clause stand part.
Amendment No. 29, in clause 116, page 52, line 32, leave out ‘five' and insert ‘fifteen'.
Amendment No. 168, in clause 116, page 52, line 34, leave out ‘apply to the court' and insert
‘inform the person making the request that it is refusing the request because it believes that the request is not made for a proper purpose'.
Amendment No. 30, in clause 116, page 52, line 34, after ‘court', insert
‘, unless an application for a confidentiality order has been made subject to section [Names and addresses of members of companies: company application] or [Names and addresses of members of companies: individual application]'.
Amendment No. 170, in clause 116, page 52, leave out line 35 and insert—
‘(2) The person making the report may apply to the court.'.
Amendment No. 171, in clause 116, page 52, line 36, after ‘is', insert ‘not'.
Amendment No. 172, in clause 116, page 52, line 37, leave out ‘not'.
Amendment No. 173, in clause 116, page 52, line 38, leave out
‘the company not to comply with'
and insert
‘that the company is permitted to refuse'.
Amendment No. 174, in clause 116, page 52, line 41, leave out from ‘request' to end.
Amendment No. 175, in clause 116, page 53, line 2, after ‘is', insert ‘permitted'.
Amendment No. 176, in clause 116, page 53, line 5, leave out from ‘if' to first ‘the' in line 6 and insert
‘the court does not make a direction that the company is permitted to refuse'.
Clause 116 stand part.
Amendment No. 169, in clause 117, page 53, line 12, leave out
‘accordance with an order of the court'
and insert
‘pursuance of a refusal under section 116(1)(b) (unless the court has decided that it is not satisfied that the request was for a proper purpose under section 116(3))'.
Clause 117 stand part.
New clause 2—Names and addresses of members of companies: company application—
‘(1) Subject to the provisions of this section, a company may make an application under this section to the Secretary of State where the condition in subsection (2) is satisfied.
(2) The condition referred to in subsection (1) above is that the company considers that the availability for inspection by members of the public of particulars of the names and usual residential or business addresses of the members of the company creates, or (if an order is not made under this section) is likely to create, a serious risk that a member of the company or a person who lives with or is an employee of a member of the company will be subjected to violence or intimidation (“a serious risk”).
(3) Where, on an application made by a company under this section, the Secretary of State is satisfied that the availability for inspection by members of the public of the particulars of that company's members' usual residential addresses creates or (if an order is not made under this section) is likely to create a serious risk that a member, or a person who lives with him, or an employee of his will be subjected to violence, intimidation or criminal activity, he shall make an order under this section (“a company member's confidentiality order”) in relation to the company.
(4) Where the Secretary of State is not satisfied under subsection (3) he shall dismiss the application.
(5) At any time when a company member's confidentiality order is in force in relation to a company, the name and address of any individual in the register of members of the company that is the subject of the confidentiality order, shall not be disclosed to any person who may request either company or Companies House disclosure of such names and addresses save in prescribed circumstances.
(6) The Secretary of State shall give the applicant notice of his decision under subsection (3) or (4); and a notice under this subsection shall be given within such period and shall contain such information as may be prescribed.
(7) The Secretary of State may at any time revoke a company members confidentiality order if he is satisfied that such conditions as may be prescribed are satisfied.'.
New clause 3—Names and addresses of members of companies: individual application—
‘(1) Subject to the provisions of this section, an individual may make an application under this section to the Secretary of State where the condition in subsection (2) is satisfied.
(2) The condition referred to in subsection (1) above is that the individual—
(a) is or proposes to become a member of a relevant company; and
(b) considers that the availability for inspection by members of the public of particulars of his name and usual residential or business address creates, or (if an order is not made under this section) is likely to create, a serious risk that he or a person who lives with him or an employee of his will be subjected to violence, intimidation or criminal activity (“a serious risk”).
(3) Where, on an application made by an individual under this section, the Secretary of State is satisfied that the availability for inspection by members of the public of the particulars of the individual's usual residential address creates or (if an order is not made under this section) is likely to create a serious risk that the individual, or a person who lives with him, or an employee of his will be subjected to violence, intimidation or criminal activity, he shall make an order under this section (“an individual member's confidentiality order”) in relation to him.
(4) Where the Secretary of State is not satisfied under subsection (3) he shall dismiss the application.
(5) At any time when an individual member's confidentiality order is in force in relation to an individual the name and address of the individual in the register of members of the company which is the subject of the confidentiality order shall not be disclosed to any person who may request either company or Companies House disclosure of such name and address save in prescribed circumstances.
(6) The Secretary of State shall give the applicant notice of his decision under subsection (3) or (4); and a notice under this subsection shall be given within such period and shall contain such information as may be prescribed.
(7) The Secretary of State may at any time revoke an individual member's confidentiality order if he is satisfied that such conditions as may be prescribed are satisfied.'.
New clause 22—Optional regime for membership register—
‘(1) A company may by special resolution exempt itself from any obligation under sections 115 to 117 to allow the inspection of its membership register or to supply a copy of the register or any part of it as long as it undertakes to pass on to all of its members any lawful message or documentation that a member of the company or a member of the public wishes to send to the company's members.
(2) The company may charge a reasonable fee for sending a message or documentation under subsection (1).
(3) Where the company has made an undertaking under subsection (1) and has failed to carry it out, an offence is committed by—
(a) the company, and
(b) every officer of the company who is in default.
(4) A person guilty of an offence under this section is liable on summary conviction to a fine not exceeding level 3 on the standard scale and, for continued contravention, a daily default fine not exceeding one-tenth of level 3 on the standard scale.
(5) In the case of any such refusal or default the court may by order compel an immediate inspection of the register or, as the case may be, direct that a copy of the register be sent to the person to whom the undertaking was made.'.

Jonathan Djanogly: Hon. Members can probably tell from that list that the amendments in this group are somewhat more significant than many of the amendments that we have discussed so far. We are moving on, of course, to shareholders’ and non-members’ rights to inspect and require copies of the register of members.
It of interest that when the matter was first discussed in Grand Committee in the Lords, the question of denying access was not raised from the point of view of extremist activity. That is because the Opposition took the decision that that was a political issue that should be dealt with by this House, not least because the topic is one on which I have corresponded with the Government for several years in the interests of my constituents who work at Huntingdon Life Sciences. Subsequently, however, several thousand shareholders of GlaxoSmithKline, the pharma-group, received threatening letters from animal rights terrorists. Suddenly, on Report in the Lords, Lord Sainsbury, on direct orders from above and urged on by a chorus of vocal peers, promised to go away and reconsider the Government’s position before Third Reading, when amendments were indeed produced and added to the Bill.
Having demanded increased protection for shareholders for many years now, and the Government having rejected my amendments to the Serious Organised Crime and Police Bill to do that, I am pleased to see that the issue is now being addressed. I am aware, however, that reactive and on-the-hoof law can often turn into the worst law in practice. That is why we need to spend some time on the clauses.
The overriding concern of my hon. Friends is to ensure the protection of shareholders from violence and intimidation.

Kitty Ussher: Does the hon. Gentleman agree that the violence and intimidating behaviour is the offence and that we should deal with that, rather than restrict the centuries-old established convention that owning a share in a company means that the information should be public?

Jonathan Djanogly: No, I disagree. If a person accesses the register of members for the purposes of using it for violence, that must be controlled.

Paul Farrelly: Does the hon. Gentleman agree that any measure that is enacted in legislation such as this has to be proportionate and should not cause wider harm, in particular to corporate governance? Throughout the corporate sector in the UK, we have striven for greater disclosure and greater transparency in corporate behaviour. The danger is that his amendments will set that back substantially.

Jonathan Djanogly: The hon. Gentleman is absolutely right. There must be a balance and proportionality between access to a register and security for those on it. We totally accept that position. He talks about our amendments inhibiting that access, but he will hear me say that most of the amendments have been tabled on a probing basis, so that we can look at the different levels that currently exist in the world and debate them. I will not maintain that we should support all of the amendments. If he bears with me I will certainly cover in some depth the point that he quite rightly mentions.
My purpose is much more than protecting companies that practise animal testing, although that is the area directly within my experience, so I shall refer to it. The amendments are more about the type of environment that we are to offer people conducting business in this country. Just as the protection of the person must be a priority for the Government, so must be protection for companies and their shareholders. Without that protection business will, as I will show the Committee, simply pick up and go overseas. The other preliminary point that I make, with some irony, is that several speakers in the Lords debate on this issue and several journalists have made out that the GlaxoSmithKline letter incident was a new development. I shall show the Committee that that was not the case and that attacks on shareholders have become an established theme of anti-corporate activism.
On the basis that this is a general debate on shareholders, I do not intend to address the rights and wrongs of the underlying issues, much though I support animal testing, for example. My point is that although direct action, sometimes slipping into terrorist activity, emanates from animal rights activists today, the same methods could be used tomorrow by other groups. If drugs manufacturers, animal testing companies and furriers are affected now, meat importers, road builders, handbag manufacturers, furniture makers or mining companies could be affected tomorrow.

Kitty Ussher: Does the hon. Gentleman not agree that under the current legislation there is no requirement for an individual to put their home address? They could use a post office address or an address care of a bank or some other institution. Does that not solve the problem he identifies?

Jonathan Djanogly: No it does not, for a variety of reasons. First, many small shareholders do not have service addresses that they can use. Secondly, if an individual shareholder wants to hold through a nominee, some companies will refuse to act as nominees. That happened with Huntingdon Life Sciences: not a single institution in the City now will act as nominee if someone wants to own HLS shares. The hon. Lady makes an important point, but the problem remains.

Justine Greening: We have just had an interesting exchange. The reality is that many shareholders will, for a variety of reasons, some of which have been outlined, put their home address. The very act of receiving a letter at home with the implicit warning, “We now know where you live,” and all the stress that may cause to family and friends visiting the house means that this is an important area to deal with.

Jonathan Djanogly: My hon. Friend makes a fair point, which I was not going to make. If someone wants to use their home address why should they be intimidated into not doing so?

Margaret Hodge: The hon. Member for Putney (Justine Greening) has taken us off in the other direction from the direction that the hon. Member for Huntingdon was taking us. There is no need for anyone to put their home address on to the shareholding. His point that some people may not have a service address is not really sufficient. If they need to create one, they can do so without necessarily having the shareholding held through a third party. It seems to me that the hon. Gentleman’s amendments are not just about opening up home addresses, but about hiding names in addition to the current provision, which can ensure that we do not have addresses.

Jonathan Djanogly: With respect to the Minister, she mentions names. If one’s name is Smith it might not matter too much. But with a name like Djanogly or Vara accessibility is slightly easier. It is not just addresses; names are an issue too.
It is clear now that farmers and animal testing companies are the weathervane for such activity, and for too long the Government and many in the City have allowed such attacks to continue while hoping that the issue would just fade away. I have carefully followed the Government’s actions on the issue and it has been clear that the priorities of varying Home Secretaries have differed widely. I was, therefore, very pleased to hear the Prime Minister speak strongly against the animal rights extremists after the GSK incident. Likewise, in an important development, I was pleased and relieved to see the recent supportive letter from a good number of City institutions that appeared in the press recently. As the largest shareholders, the fact that they finally stood up jointly against the terrorists was an important development and they are to be congratulated on taking a stand.
The key message is that those terrorists are fanatics to their cause every bit as much as the fanatics behind the challenges we face elsewhere. The problem will not simply go away. Unless we counter it head on, it will fester, grow and become much more of a problem in a wider range of sectors. We have no choice but to act.
I recognise that the number of arrests of such terrorists has increased recently, but we must be aware that many of them wear their conviction record as a badge of pride within their own ranks. Furthermore, their tactics are often surreptitious in so far as they are fairly expert at getting the maximum publicity for their stunts and crimes using a very small number of activists. That is one of the things that is so frightening about this topic. No one has given me an accurate assessment of the number of extremist protestors, but we may be talking of little more than 100 or so who have crossed the line into out-and-out terrorism.
The important breakthrough in dealing with these people came about via the civil law, rather than the criminal law, when Huntingdon Life Sciences managed to secure a civil injunction under the Protection from Harassment Act 1997, which was originally intended to stop stalking. The court found that the injunction could cover all of the employees and at multiple locations, including their homes. As different companies have subsequently applied for injunctions, the courts have gradually extended the remit to cover activists who continually look for new victims related to the company who are not covered by the injunction. One granted to Oxford university was extended to cover third-party unnamed suppliers to the proposed research premises, and was then further extended to cover people who live or work in Oxford who may be negatively affected by noise and so on. Very recently GSK also used an injunction to protect its shareholders.
The Serious Organised Crime and Police Act 2005, passed in January last year, included provisions that made it easier to secure injunctions, as well as instituting other valuable measures concerning harassment of people in their own homes. That was important because when HLS shareholders were approached by the terrorists, many of them had their homes picketed, graffitied and so on. Injunctions tend to work quite well because breaching them can incur criminal penalties, and for the most part the terrorists work within or around the law, mainly saving criminal activity for the night or for when it is difficult to catch them. However, the use of injunctions has meant that the extremist campaign has become wider so the number of so-called home visits—that is for protest visits, not taking tea—has decreased for directors and employees, while anonymous activities such as abusive calls and hate mail has increased and the incidence of criminal damage, which takes place mainly at night, is high.
Importantly, as more farm and research companies take out injunctions, so the extremists look for easier targets. We have seen an increase in the number of secondary and tertiary target companies. Typically, the secondary target company will be a small family-owned supplier, possibly in the locality of the primary target. It will be sent a letter saying that it must sign a document promising not to trade with, for example, HLS, and that if it does not sign, it will be put on the Stop Huntingdon Animal Cruelty website. That threat is often enough to get a capitulation, as the extremists call it. For the brave traders who refuse to be intimidated, being placed on the SHAC website means that their company is game for visits from the thugs. That is when it starts to get really nasty. Normally, it starts with protestors invading the premises. Many small businesses in my constituency have called me about the torments they have suffered because of such thugs.
I was a member of the Committee that considered the Serious Organised Crime and Police Bill. We had been pushing for some time for new criminal laws to protect companies from economic terrorism and tabled amendments to deal with it. We were happy when the Government accepted the point and later introduced their own provision—clause 145—preventing animal testing companies from being forced to act in a certain way if contracts had terminated in circumstances of criminal activity.
At that time, the Conservatives wanted the provision being drafted to apply more widely than to animal testing companies alone. As Lord Sainsbury said in the other place, the protections given shareholders in the Bill need to be looked at in the context of protections given under the Serious Organised Crime and Police Act 2005. That being the case, we now think that section 145 provisions should be extended to all companies, as provided for in section 149 of the 2005 Act. Although the Government are acting, it seems to be always at the last minute and at the point of a gun. Can we please think a step ahead of the extremists?

Paul Farrelly: I appreciate that the hon. Gentleman has constituency concerns because of Huntingdon Life Sciences. Not far from my constituency in my county of Staffordshire, animal rights terrorists have attacked farmers and local people because of a guinea pig farm. However, companies such as Huntingdon Life Sciences can set up facilities for shareholders that do not involve giving addresses. Facilities to help the trading of shares are set up all the time. He says that the amendments are widely drafted and cover the whole corporate sector, but they are not proportionate and add nothing to a situation that can be resolved in other ways. The amendments would set back corporate governance and transparency in this country by a long way.

Jonathan Djanogly: I explained myself to the hon. Gentleman before and shall do so again, because he obviously totally missed my point. The point of most of our amendments is that Parliament should have a debate on the extent to which access should be given to the register of members. Different countries and systems treat the issue in different ways. The provisions were rushed through by the Government in the other place, mostly on Third Reading and without debate. The hon. Gentleman may think that the issues therefore do not deserve debate. I am afraid that I disagree entirely; we will have that debate.

Margaret Hodge: I should like to put something straight on the record. My noble Friend Lord Sainsbury, the Minister with prime responsibility for many of these issues, has been responsible for taking forward a whole raft of new legislation as the problem that we are discussing has emerged and developed. It is unfair to assert that that has not happened. I hope that the hon. Gentleman will withdraw his assertion. I know from my dealings with my noble Friend that what the hon. Gentleman says is not the case.
This Bill, as introduced in the House of Lords, included substantial protection of members. Further consideration was given to issues raised in the House of Lords and in the inclusive way in which we tried to devise the Bill. Indeed, I held a meeting with the hon. Gentleman, in which we sought to establish whether we could develop those clauses any further. We did. To suggest that—

Eric Illsley: Order. The Minister is intervening. As I said, it would be far easier for Committee members to allow the hon. Gentleman to move the amendment. They could then make speeches, rather than long interventions.
Mr. Djanoglyrose—

Paul Farrelly: Will the hon. Gentleman give way on that point?

Jonathan Djanogly: No, I shall respond to the Minister and then come back to the hon. Gentleman if he can wait. You made an important point, Mr. Illsley. I am developing an argument, and it is not helpful when the Minister and the hon. Gentleman pre-empt me.
In response to the Minister’s point, I should say that I have not denied that there is previous legislation. I have just spent five minutes talking about recent legislation and how it has happened, so I am not denying it. I have said nothing about what Lord Sainsbury has or has not done. In fact, I think that he has been the pick of the bunch that the Government have offered on this issue. He has done a lot of good and I respect him for it. The Minister put the wrong words in my mouth.

Paul Farrelly: I fully understood the hon. Gentleman’s previous point that these are probing amendments, so he is not seriously considering pressing them to a Division. So far in our debate on funding life sciences, he has attacked the Government, who have bent over backwards to be helpful to shareholders and businesses, and the lead has been very well set by the Prime Minister. The hon. Gentleman is addressingthe matter of Huntingdon Life Sciences but not the amendment. If he were serious, he would table amendments that would affect the position of shareholders in that company.

Eric Illsley: Order. Once again I ask hon. Members to make briefer interventions. There will be an opportunity to debate the whole clause under stand part.

Jonathan Djanogly: Let me reassure the hon. Gentleman on two points. First, I shall be developing the argument way beyond Huntingdon Life Sciences. Secondly, I repeat that there must be a debate on the extent to which the provisions will work in practice and whether they are appropriate. That is a debate that we have not had and that I hope to begin now.
I return to the relationship between civil and criminal law in the context of shareholders. Many, if not most, of the companies that will be affected are not the size of GlaxoSmithKline—far from it. They will normally be small family businesses for which an injunction costing tens of thousands of pounds is unaffordable. More to the point, such companies are asking, “Is it not for the Government to defend us against terrorist activity rather than our having to pay for injunctions?”
Where do shareholders fit in? I have tried to explain that this debate is multifaceted and highly interconnected, mainly because activists will look for weak points where, with the minimum number of people, they can inflict the maximum damage, be it to property, people or a company’s economic prospects.

Margaret Hodge: I want to make a point and ask a question that my hon. and learned Friend the Under-Secretary has just raised with me. First, injunctions do not necessarily cost as much as he has suggested. Secondly, he is looking at the matter simply from the point of view of the company. If a company will not disclose its membership to an individual with a perfectly proper and legitimate request, is it right that that individual should incur enormous litigation costs to seek access to its members? Would it be right and affordable by the individual, given that the hon. Gentleman has just said that it would not be affordable by the company?

Jonathan Djanogly: I am not totally sure what point the Minister is making. If it is to ask whether an individual should have a personal right to get an injunction to defend themselves, I suppose that they should. That is not what I am suggesting.

Margaret Hodge: I can help the hon. Gentleman. In new clause 2, he suggests that a company should apply to the Secretary of State to withhold the information. It would then be up to an individual to challenge that through a court process. The hon. Gentleman said that a company cannot afford a court challenge, but when there is a perfectly legitimate inquiry by an individual on the membership of a company, he expects the individual to afford it. That seems disproportionate.

Jonathan Djanogly: I shall come on to this in detail in a moment. The Minister is pre-empting my argument, and if she looks a little more closely at the new clause, she will see that it would latch on to her existing provisions rather than remove them. I do, indeed, say that we need to examine whether a company having to make the first move through the courts is necessarily the right way to go.
Many companies will fold under what can be a concerted and multi-directional attack. Some that believe in what they are doing and refuse to be scared by intimidation will trade on—companies such as HLS and suppliers such as builders Montpellier, which is building the Oxford labs. In both those cases, the issue that sparked the crisis was when the terrorists attacked the respective companies’ shareholders. At that point HLS, unable to survive as a company registered in this country because of the hate mail and death threats being sent to its shareholders, repatriated to Maryland, USA, and re-listed on the US NASDAQ exchange. Why Maryland? Because in that state, only holders of5 per cent. or more of a company’s shares have to be disclosed, and then only to other shareholders. To answer the question asked earlier by the hon. Member for Newcastle-under-Lyme, I am not advocating the use of that approach in the UK. To that extent, amendment No. 26 has been tabled on a probing basis, so that the Government can put on the record their view of such a framework for shareholders.
To amplify the importance of the issue, let us look at the case of Montpellier in Oxford. It bravely resisted the attacks of the terrorists, but finally stopped work when its shareholders started being threatened and attacked. As a relatively small listed company, its share price was directly affected by that activity. So a direct link could be made between access to a register of members and impending disaster for that company.
The importance of the attack on GSK shareholders was of a different nature. I read the remarks of Jean-Pierre Garnier, the GSK chief executive officer, and I think that he should be thoroughly commended for standing up to the terrorists and defending his industry. The tactics for the terrorist attack on GSK shareholders were roughly the same as those on HLS and Montpellier. The letters to GSK shareholders stated:
“The only way to hold GSK to its promise [not to use HLS] is to target its financial vulnerability. We are therefore giving you this opportunity to sell your shares in GSK. Over the next two weeks every shareholder of GSK will be receiving this letter. If you have any doubts over the effectiveness of this action then keep a close eye on the GSK share price and watch it plummet.”
The difference between GSK, and HLS and Montpellier, is worth considering. This is not a formal analysis, but worth considering: in the event, the GSK share price held steady. GSK put that down to fewer than 5 per cent. of its shares being owned by private investors, and the remainder by institutions. Furthermore, this time, rather than cowering in the shadows, those institutions got together and spoke out in support of the industry. That made a big impact. At the same time, politicians spoke out against animal rights extremism and the media took it up as a big issue. They even conducted surveys showing that the vast majority of the British public accepted drug testing on animals. In other words, the terrorists were marginalised in a way that had not happened before.
The GSK chief executive officer said one thing, however, that I would like to question. He claimed that existing laws were sufficient, and specifically mentioned the existing option for shareholders to switch from personal to nominee accounts. To its great credit, GSK quickly put that in place and helped out small shareholders. I believe that that was the point that the hon. Member for Burnley (Kitty Ussher) made earlier. 
I would point out, however, that that might be all well and good for a large company such as GSK, but let us be frank: with the number of people that it employs, its level of investment in British farming and the fees that it pays to City institutions, it could demand action from Government and pay for its own action more easily than could small companies such as HLS or Montpellier.
Having said that, I have long said and agreed that new laws will not in themselves be enough, and that Government time and money needs to go into prosecuting the offenders and co-ordinating a response around the country. At the same time, however, few City institutions are going to refuse to act as a nominee to hold GSK shares. The same is not the case with HLS where, in the most cowardly fashion, one institution after the next refused to act as nominee for its shares. That was in addition to banks refusing to do its banking and brokers refusing to handle its insurance. That is the potential and horrendous reality, not perhaps for GSK, but for smaller companies, particularly small listed companies, whose bottom line and share prices will be affected by the cost of injunctions and security arrangements, and where a concerted attack on its shareholders will have serious consequences.

Margaret Hodge: I know that the hon. Gentleman rightly feels passionately about those issues, from his own experience, and many of us do too. However, I do not follow how that debate has an impact on whether a bank is prepared to lend money or companies do business with such a company. [Interruption.] Home addresses of the shareholders are not necessary under provisions in the Bill.
I put it to the hon. Gentleman that the rest of the debate is not relevant to the consideration of whether the names of members should be entered—the issue that we are talking about—or whether the provisions in the Bill, which enable a company to—

Eric Illsley: Order. Interventions are becoming too long. It would be far easier to allow the hon. Gentleman, who is in order, to move his amendments and to respond afterwards.

Jonathan Djanogly: I am not sure whether I heard the Minister right. Is she honestly saying that if a death threat to a shareholder is sent to their service address, rather than to their home address, it is okay?

Margaret Hodge: Of course I am not saying that. The issue is about striking a balance between the accountability and the openness that are the basis of company law. I urge the hon. Gentleman to think widely about what he is proposing to the Committee. The issue is whether he has the balance right, given the other ways and mechanisms in place to deal with the horrors and unacceptability—there is unanimity about that here—of such terrorists.

Jonathan Djanogly: That is exactly what the Minister will hear from me. Spending half an hour defending shareholders in this country is more worthy than spending half an hour talking about Eccles cakes. Perhaps she will give me a bit of latitude in developing my argument and we can then give her the chance to address my concerns.
If we do not get on top of the issue, we will see many more companies such as Huntingdon Life Sciences repatriating to the US. We can have whatever tax regime we like in this country, but if company shareholders are approached and attacked, the company will be forced to consider moving.
To put just the pharmaceutical sector in perspective, it contributes more than £6.5 billion a year to Britain’s GDP. It contributes £12 billion in exports. It employs 80,000 people directly and 250,000 indirectly. That is serious stuff for UK plc. I have attempted to explain the need to protect shareholder details and why that needs to be put in a wider context. It constitutes one aspect of the protection of business against extremism. 
I emphasise, however, that countering criminal activity using shareholder registers goes much further than dealing with extremists. One other problem is the growth in foreign-based, so-called boiler rooms, which have been approaching individuals, whose personal details they harvest from members’ registers, to persuade them to buy investments that are often worthless and often imply a connection with the company whose register they are misusing.
A court case recently revealed that fraudsters were using registers to steal shares from overseas investors. The Financial Times reported on 6 May that the company secretary of Balfour Beatty wrote to the company’s 20,000 shareholders after receiving a significant number of complaints. Diageo wrote to 110,000 shareholders after similar calls to its members. Close Brothers Group, GSK, MFI and Majestic Wine have all complained of the same problem.

Kitty Ussher: The hon. Gentleman might be confusing two issues. The first is the original offence. He mentioned the word “fraudster” and talked about death threats. Those are, of course, criminal offences. Perhaps he is confusing that issue with the issue of where the information is obtained from. Does he agree with that?

Jonathan Djanogly: I am not sure that I take the hon. Lady’s point. I say to her this: if someone takes details of a register of members—either by using the address, whether a service address or a home address, or by using the name, which in my case would enable people to track me down easily as they would get a telephone number quickly—and they are used either by an extremist who wants to send me a death threat or by a boiler-room fraudster who wants to do illegal cold calling to get me to buy shares in a company that does not exist, those shareholders deserve protection.

Margaret Hodge: Will the hon. Gentleman turn the issue the other way round? In which circumstances is it legitimate for companies to have registers that give the names—not the addresses—of their members? He is talking about all these situations. Almost universal secrecy appears to be the thrust of his argument. When is it legitimate for companies to have a register of members?

Jonathan Djanogly: I do not think that I have suggested that companies should get rid of registers of members. If the Minister thinks I suggested that, she must think again.

Margaret Hodge: Perhaps I can help the hon. Gentleman. He suggested that there was wrongful exploitation of the names of members of companies by people other than extremists for the purposes of selling. There is a tradition that the names of members are openly available, for reasons of transparency. Given the thrust and direction of his argument, I ask him again, how does he define the circumstances?

Jonathan Djanogly: Is the Minister now suggesting that we are talking about extremists operating from boiler rooms? Is that what she is implying?

Margaret Hodge: Answer the question.

Jonathan Djanogly: If the Minister lets me develop my argument, she will see where I am coming from.
Paul Farrellyrose—
Kitty Ussherrose—

Jonathan Djanogly: I want to make progress and develop my argument, and then I will take further interventions. I have been fair so far.
The problem is clear, and we need to look at the Government proposals tabled on Third Reading in the other place and so far not reviewed in Committee. Lord Sainsbury made it clear that the Government want to strike a balance between disclosure and security. I appreciate that that is an important issue and that it is not straightforward.
Amendments were made on Third Reading in the other place to attempt to create both a trail of the records to stop companies being swamped with similar requests and new offences relating to misuse of the registers. Individually, those seem fine, but at this stage we need to consider the provisions in the round, conceptually.
First, as things stand, in practical terms a coach and horses can be driven through the provisions because details of shareholders as at the return date need to be filed annually with the annual return. The Companies House fiche, therefore, may not be accurate as at any other given moment, but it is certainly adequate for conducting a terror campaign against shareholders.
In Committee in the House of Lords, the Government said that they would consider introducing regulations to change that requirement. Why not simply add those provisions to the Bill? We have tabled an amendment to that purpose, which we hope will be selected when we consider part 23, which deals with annual returns.
In January, the Minister, Lord Sainsbury, said that he would act. On such a key issue, I ask this Minister please to explain why no Government amendments have been tabled specifically to remove the requirement for companies to identify individually their members in their annual return. The formula chosen by the Government is for the company to make the move if it objects to a request to see the register, and I want to make various points on that issue.
First, I want to discuss matters raised by the United Kingdom Shareholders Association in its briefing paper dated 30 May, which states:
“At Third Reading amendments were brought forward by Lord Sainsbury intended to meet the concerns expressed at the Report Stage. Lord Hodgson, while expressing appreciation, reserved his position and indicated that these matters would be for discussion in the Commons. Despite all the protestations to the contrary, Lord Sainsbury maintained his position that it is impossible to formulate a definition of a proper or an improper purpose and that a company and a court will instinctively know a purpose that is not proper when they see one.
This seems to be a case where the DTI have got themselves stuck in a mindset and cannot see an alternative way through. We still believe that it is unreasonable to leave the definition so vague and to expect companies to decide what the courts are likely to consider as ‘not a proper purpose’ and act accordingly. If, for example, we are talking about animal rights activists, the company will have to decide whether the level of communication intended is at an acceptable level, e.g. letters to ask shareholders to press the company to change its policy, or involves action of a more threatening or harassing nature. Equally if there is a request on behalf of some kind of investment organisation, the company will have to decide whether it is a reasonable use to try to gain clients or whether it is some kind of scam. There is no obligation on the company to contest the request by going to court. It would be very easy for them to decide that the trouble and cost are too much and just comply with the request.
In practice the lack of a clear definition will cause enormous difficulties both for companies in deciding whether to grant access to the register, and for organisations such as our own who occasionally request copies. We would also risk incurring considerable legal costs because of the lack of such clarity, and it could be very many years before legal practice was established by case law, if ever.
We believe that it would be quite possible to draft a clause with clear examples of an improper purpose but still leaving the courts a wide discretion to extend the list if they saw fit. This kind of approach has been adopted in The Unfair Terms in Consumer Contracts Regulations 1999...Another example is in Section 11(2) of the Unfair Contract Terms Act 1977.
The only place where we have been able to find ‘proper purpose’ used in connection with a criminal offence is in the Merchant Shipping and Fishing Vessels (Medical Stores) Regulations 1995. There, at Reg 12, it is a defence if medicines and medical stores have been used for their ‘proper purpose’; surely a situation where the meaning of the words is rather more obvious.”
That points to the fact that there is a great deal to be debated in relation to the Government’s proposals.
An article in The Times on 9 May begins by quoting Mr. John Roundhill of the Institute of Chartered Secretaries and Administrators:
“‘Under the new proposals, the company is obliged to deliver the register only if the person requesting it can prove that they require the information for a “fit and proper” purpose...We would urge the Department for Trade and Industry to look at this clause again as we are concerned that there is no definition of “fit and proper” purpose.’
Mr Roundhill is chairman of the registrars' group of the Institute of Chartered Secretaries and Administrators, which represents 97 per cent. of Britain’s shareholders. He said that it would be fairly easy for a person to give the impression that he intended to use the information for a ‘fit and proper’ purpose but that it would be difficult to know whether this was true.
He is also concerned that the company has only five days to determine whether or not the case is ‘fit and proper’.”

Justine Greening: My hon. Friend illuminates the issue. Unfortunately, companies will know that information has been used improperly only after it has happened, and because the asset is information, once it has been given it cannot be taken away again. Therefore, it is almost impossible for companies retrospectively to take action when something has already gone wrong.

Jonathan Djanogly: My hon. Friend goes to the nub of the matter; that is what the debate is about. At the time the request comes in, it will be difficult to know whether it is valid. That is one of our main problems with the measure.

Paul Farrelly: I do not want to delay the Committee, but the hon. Gentleman has been discussing Huntingdon Life Sciences without advancing his cause and argument as he has not tabled sensible amendments. That is the point that my right hon. Friend the Minister was making. His amendments would set corporate governance in this country back by 100 years. It is not a solution for Huntingdon Life Sciences to move in the direction of Mickey Mouse tax havens with their secrecy, which he would rightly criticise.

Jonathan Djanogly: The hon. Gentleman has said two or three times now that I intend to set about destroying corporate governance. Will he explain how?

Paul Farrelly: As my right hon. Friend the Minister said, through allowing a general presumption of secrecy, and in one of his amendments putting the company in the place of the court as the sole arbiter.

Jonathan Djanogly: First, the hon. Gentleman does not know that I am suggesting a general presumption of secrecy. In fact, I specifically did not advocate the Maryland system. He is on the wrong track; perhaps he did not understand what I was saying. I would like to proceed with making my points.
We have an important problem in clause 115. It may be possible, at a push, for a large company to instruct lawyers, solicitors and barristers to take a case to court within five days, but it would be much more inconvenient, if not wholly unrealistic, to expect a smaller company to keep to that timetable. That is why we asked for the Minister’s comments on our amendment No. 29, which would increase the number of days from five to 15. For a small company, it would still be a tall order to go to court, particularly if it had to do so on a repeat basis.
Additionally, we must keep it in mind that smaller companies are more likely to be attractive targets of activism. The activists are not stupid. They will learn from their bruising GSK experience of fighting with the big boys and head back to the smaller and easier pickings. It has been pointed out to us that, because the share register is statutory, the information in it is outside the regulatory environment of the Information Commission. If the Government have examined that point, I would appreciate hearing the Minister’s views.
Clause 115 requires people to identify the purpose for which the information is to be used. Amendment No. 27—a probing amendment—proposes that the information should be precise. My hon. Friend the Member for Putney rightly asked what would happen if the reason given was, “To inform shareholders of an important matter for themselves, the company, humanity and the environment,” without any statement that shareholders will be asked to sell their shares as a protest. It could be complicated, and many complex and expensive court cases could arise. Do the Government intend to give any guidance on that?
Let us consider the alternatives. The first is the approach adopted in Maryland, USA, which I have discussed previously and have discounted for this country—although I should like to hear the Minister’s views on it, because Huntingdon Life Sciences felt that it was forced to adopt it because of terrorist activity. It would restrict access to members holding at least 5 per cent.
The second approach would be to define what constitutes a proper or improper purpose, as suggested by the UK Shareholders Association, among others. Lord Sainsbury said that he had specifically turned that down because in his view it would be impossible satisfactorily to formulate a definition to cover all situations. Other people have since disagreed, and I should be interested to hear whether the Minister has reassessed the position.
A third approach, which could be complementary to the Government’s, would be to provide companies and individuals with the right to apply to the DTI to, in effect, close the register if the availability of the register created, or was likely to create, a serious risk that a member of the company, or connected parties, would be subject to violence or intimidation.
Hon. Members will note that I am not calling for a general closure of the register; I am talking about closure in situations where it could be shown to the registrar that members would be subject to intimidation. That approach suggests that companies should not all be thrown into the same basket. Some companies or individuals may be at such risk that they should be treated on a stand-alone basis. The provisions could be tacked on to existing provisions and could provide a further level of protection that might be more realistic, accessible and certainly cheaper for smaller companies that believe that their shareholders need protection. The clause as it stands works only for a company seeking protection in respect of all its members and does not provide for individual members to seek to protect their details. New clauses 2 and 3 provide for that.
The Liberal Democrats have suggested another option which is worthy of consideration in the form of new clause 22. I shall not steal the thunder of the hon. Member for Cambridge, but from our point of view the proposal heads in the same direction as ours. It provides for the company to vote to close its register by special resolution of members, on the basis that the company would pass lawful communications on to interested parties. I can see the attractions of that, and I look forward to hearing his case. There are a number of approaches and the issue is important to the future of business in this country. I am pleased to have had the opportunity to debate it, although the debate is one that I believe we should have had years ago.
Finally, on clause 115 stand part, regulation 3(1) of the Companies (Inspection and Copying of Registers, Indices and Documents) Regulations 1991 says:
“This Regulation applies to an obligation to make a register, index or document available for inspection imposed ona company by sections 169(5)...175(6)...191(1)...219(1)... 288(3)...318(7)...356(1)...and 383(1)... of the Act, as well as to section 325 of, and paragraph 25 of Part IV of Schedule 13 to, the Act”.
The Act referred to is the Companies Act 1985.
Regulation 3(2) goes on to say:
“The company shall:
(a) make the register, index or document available for such inspection for not less than two hours during the period between 9 a.m. and 5 p.m. on each business day; and
(b) permit a person inspecting the register, index or document to copy any information made available for inspection by means of the taking of notes or the transcription of the information.”
One practical issue is that the inspector of the register will not know the number of company members at the time of the application for inspection. Therefore, he will not know what fee must be paid for the copy of the register. He will need to ask the company, which could delay in responding or in telling him, for instance, which two hours on any business day are available for inspection. Could that not be used as a delaying tactic in a takeover, and would it not be better to have fixed access hours, or at least fixed fees?
Also, I understand that the Court of Appeal in Pelling v. Families Need Fathers recently ruled that a court has the discretion not to order a company to allow a member to require a copy of its register. How does that tie in with the statutory instrument?
Debate adjourned.—[Steve McCabe.]

Adjourned at twenty-four minutes to Five o’clock till Tuesday 27 June at half-past Ten o’clock.